GIFT   OF 


MAY 


SNAPPING  CORDS 


COMMENTS  ON  THE  CHANGING  ATTITUDE 

OF  AMERICAN  CITIES  TOWARD  THE 

UTILITY  PROBLEM 


BY 

MORRIS  LLEWELLYN   COOKE 

DIRECTOR   OF   PUBLIC    WORKS,    CITY   OF   PHILADELPHIA 


SUMMARY 

The  unity  of  policy  and  action  among  private  interests  in  the 
utility  field— gas,  water,  electric  and  others — is  almost  com- 
plete. This  solidarity  is  practically  world-wide  in  scope  and 
is  of  a  type  not  reached  by  existing  laws. 

A  small  group  of  financiers  and  promoters — and  their  banking 
agents — provide  for  the  public  almost  ready  made,  not  only 
securities  but  public  opinion,  laws,  machinery  and  even  the 
technical  experts. 

Publicity — incessant  and  relentless— is  the  only  remedy.  This 
must  provide  open  and  fair  bookkeeping,  with  inventories 
made  on  a  basis  comparable  with  those  used  in  private 
business  and  a  uniform  system  of  cost  accounting,  tying  in 
with  the  general  books  and  including  the  smallest  details  of 
the  enterprise. 

Inter-city  and  nation-wide  cooperation,  through  the  Utilities  Bureau, 
must  provide  for  each  individual  city  the  support  which  each 
private  company  receives  from  the  league  of  private  interests. 


Two  lectures  given  at  various  eastern 

universities  during  the  early 

part  of  1915  • 


This  pamphlet  has  not  been  published  at 
public  expense.  The  entire  cost  of  printing 
has  been  met  by  friends  of  good  municipal 
government. 

Additional  copies  may  be  had  free  of  charge 
on  application  to  the  Department  of  Public 
Works,  Room  216,  City  Hall,  Philadelphia. 


SNAPPING  CORDS 


COMMENTS  ON  THE  CHANGING  ATTITUDE 

OF  AMERICAN  CITIES  TOWARD  THE 

UTILITY  PROBLEM 


BY 

MORRIS  LLEWELLYN  COOKE 

DIRECTOR  OP   PUBLIC   WORKS,    fclTY   OF  'PHILADELPHIA 


PRIVATELY  PRINTED 
1915 


LECTURE  I 

THE  basic  fact  underlying  any  discussion  of  municipal  utili- 
ties is  the  essential  solidarity  of  the  private  interests  which 
control  them.  Of  this  oneness  in  method  and  mutuality  of  pur- 
pose some  may  be  legitimate  and  may  lead  to  efficiency.  Much 
of  it,  however,  is  short-sighted,  non-dividend  producing  and  anti- 
social. Not  a  little  of  it  is  clearly  against  existing  statutes.  In 
all  this  planning  the  security  floater  is  in  supreme  authority. 
The  engineer,  the  scientist  and  the  administrator  all  take  their 
orders  from  the  investment  bankers. 

This  alliance  of  those  that  control  —  even  if  they  do  not  own  — 
these  properties  is  brought  about  through  a  widespread,  unwrit- 
ten and  sometimes  unrecognized  system  of  exchange  of  "courte- 
sies" rather  than  through  definite  business  associations  of  types 
either  warranted  or  prohibited  by  law.  Many  of  the  agencies 
through  which  this  control  is  made  effective  do  not  see  in  them- 
selves cogs  in  a  well-nigh  invincible  system.  What  we  shall 
call  "courtesy"  for  the  lack  of  a  better  name  has  become  such  a 
preponderant  factor  in  the  utility  situation  that  if  it  could  be 
brought  about  that  all  the  laws  were  scrupulously  obeyed  the 
present  status  would  remain  practically  unaltered. 

The  utility  problem  through  its  bearing  on  crooked  politics 
and  bad  government  has  become  almost  the  crux  of  the  municipal 
situation  and  as  such  its  solution  is,  in  one  sense,  the  key  to  na- 
tional prosperity.  These  lectures  are  intended  as  a  statement 
of  conditions  as  we  who  represent  the  cities  see  them,  together 
with  certain  suggestions  as  to  the  lines  along  which  I  believe 
progress  can  and  will  be  made.  Undoubtedly  the  foundations 
on  which  this  great  utility  structure  rests  are  slipping  and  the 
cords  which  have  bound  us  as  a  people  to  inefficiency  and  venality 
are  snapping. 

During  the  past  three  years,  while  Director  of  Public  Works  of 
the  City  of  Philadelphia,  it  has  been  my  duty  to  study  the  rami- 
fications of  these  interests  and  the  destinations  toward  which 
they  are  steering.  During  this  time  my  position  has  brought 

[3] 


4  SNAPPING  CORDS 

definite  business  relations  with  over  a  score  of  public  service 
companies.  With  each  of  at  least  a  half  dozen  of  these  companies 
the  Administration  has  negotiated  contracts  running  into  the 
millions.  In  two  of  these  contracts  the  expenditure  of  a  great 
many  million  dollars  is  involved. 

Whenever  the  argument  will  be  assisted  by  so  doing,  I  will 
mention  companies  and  individuals  by  name.  I  want  at  the 
beginning,  however,  to  disclaim  any  intent  to  charge  individuals 
or  corporations  with  conscious  wrong-doing  or  intentional  law 
breaking.  It  is  my  observation  that  individually  and  collec- 
tively—  and  so  far  as  is  consistent  with  their  individual  and 
collective  pasts  —  the  men  who  control  these  properties  are,  try- 
ing to  conform  to  the  letter  of  the  law  as  they  interpret  the  laws 
and  as  they  expect  to  get  them  interpreted. 

Every  manager  of  a  utility  in  this  country  today  recognizes 
that  he  is  engaged  in  a  titanic  struggle.  I  sometimes  think  that 
the  utilities  really  over-estimate  the  fighting  qualities  of  the  opposi- 
tion and  under-estimate  their  own.  In  the  discussions  of  these 
matters  carried  on  by  those  representing  the  cities  terms  such 
as  " fight,"  " battle,"  " warfare"  are  on  every  page.  For  my  own 
part  I  like  to  feel  that  we  are  entered  upon  a  vitally  important 
educational  campaign,  for  the  issues  are  for  the  most  part  far  too 
inaccessible  and  involved  to  yield  to  brute  force.  Here  and  there 
we  find  marauding  companies  and  individuals  who  must  be  beaten 
into  line  or  crushed.  But  generally  we  find  utility  companies 
marching  shoulder  to  shoulder  in  one  army  and  under  one  banner 
-guided  and  actuated  by  the  same  set  of  principles.  This  is 
too  big  an  army  to  crush. 

But  to  some  it  is  too  hopelessly  slow  to  act  on  the  theory  of  an 
educational  campaign  rather  than  a  deadly  encounter  in  which 
each  side  is  trying  to  wipe  out  the  other.  It  has  recently  been 
well  said  that  "it  seems  impossible  extensively  to  combine  fairness 
and  action.  Occasionally  we  find  decisive  activity  harmonized 
with  universal  justness.  As  a  rule,  the  leader  in  deeds  tends  to 
be  narrow,  partisan,  unfair.  It  is  because  we  cease  to  be  the  ex- 
ponent of  causes  and  become  the  exponent  of  opposition  that  we 
lose  in  power.  Man's  strength  is  shown  when  he  expresses  his 
faith,  not  when  he  elaborates  his  dislikes." 

If  we  have  good  reason  for  speaking  without  venom  and  by  the 
facts,  we  have  equally  strong  incentive  for  speaking  fearlessly. 


SNAPPING  CORDS  5 

Such  opportunities  as  this  to  speak  not  only  under  distinguished 
auspices  but  without  trammels  come  only  too  rarely.  ~If,~  as  I 
believe,  we  are  confronted  with  the  gravest  dangers  in  this  utility 
field,  the  more  we  know  of  utility  corporations  the  less  likely  are 
they  to  become  malignant. 

It  is  because  anywhere  near  a  complete  victory  for  either  side 
in  this  matter  means  to  the  one  side  destruction  in  great  quan- 
tities of  certain  kinds  of  paper  value  by  public  ownership  and 
heavy  and  new  public  duties  to  the  other,  that  I  want  to  urge  on 
both  sides  the  utmost  of  consideration  for  the  rights  and  even 
the  views  of  the  other.  The  present  day  managers  and  owners 
of  a  property  actually  worth  less  than  $25,000,000  but  with  out- 
standing securities  of  over  $50,000,000  are  in  an  exceedingly  em- 
barrassing position.  They  want  more  than  sympathy  —  they 
want  help.  Again  a  group  of  men,  who  in  the  late  nineties  pride- 
fully  referred  to  themselves  as  " robber  barons'7 1  and  acted  the 
part,  are  only  to  be  pitied  as  they  are  forced  to  submit  their 
every  act  to  the  decrees  of  public  service  commissions.  And 
again  most  men  having  once  learned  the  technique  of  bribery 
would  find  it  less  trouble  to  keep  on  buying  their  way  than  to  deal 
fairly  with  honest  city  officials.  Then  I  suppose,  on  the  theory 
that  one  swallow  does  not  make  a  summer,  the  utility  man  argues 
that  one  honest  official  or  even  one  honest  administration  does 
not  materially  alter  human  probabilities. 

It  does  those  of  us  who  are  looking  at  it  from  the  cities'  side  no 
harm  to  see  the  problem  through  the  utility  man's  difficulties. 
And  let  me  tell  you  that  he  has  them. 

We  should  understand  the  way  in  which  the  so-called  " water" 
has  been  introduced  into  the  securities  of  these  companies. 

At  the  beginning  of  the  process  stands  a  banker  who,  having 
purchased  all  or  practically  all  of  the  stock  of  a  locally  owned 
property,  proceeds  to  introduce  better  methods  of  management 
and  to  improve  and  extend  the  equipment,  accepting  for  the 
money  advanced  for  such  purposes  whatever  security  the  com- 
pany is  able  to  issue.2 

1  The  group  of  capitalists  among  whom  this  cognomen  was  playfully  used 
in  familiar  discourse  is  still  operating. 

2  A  case  which  comes  to  my  mind  is  that  of  a  large  eastern  gas  com- 
pany.    Some  local  parties  got  a  large  majority  of  this  stock  together  in  a 
pot.     A  firm  of  lawyers  undertook  to  dispose  of  this  stock  at  an  advance 
in  price  because  of   its  representing  so   nearly  the   full  ownership  of   the 


6  SNAPPING  CORDS 

As  soon  as  the  earnings  of  the  company  reflect  these  improved 
conditions  or  results  are  sufficiently  assured  to  warrant  an  ade- 
quate engineering  report,  a  plan  of  reorganization  is  devised. 

A  company  is  formed  to  take  over  one  or  more  smaller  companies. 
This  company  usually  authorizes  enough  bonds  to  provide  for  the 
refunding  of  all  the  mortgage  indebtedness  of  the  companies  con- 
solidated and  to  pay  back  to  the  banker  the  money  expended  by 
him,  in  the  purchase  of  the  stock  of  these  companies  and  also  the 
improvements  made  and  sometimes  a  cash  profit  besides,  but  this 
is  not  usual.  Very  often  they  do  not  get  back  all  of  the  money 
put  out.  But  you  will  recognize  when  they  do  get  back  all  of 
the  money  put  out,  the  stock  of  the  company  becomes  theirs  for 
services  without  any  actual  cost. 

Preferred  and  common  stocks  are  issued  in  amounts  according 
to  the  particular  plan.  The  preferred  stock  is  generally  sold  as 
soon  as  the  earnings  make  this  possible  for  cash,  which  is  either 
profit  or  to  a  considerable  extent  profit  and  the  common  stock 
representing  the  control  of  the  company  and  its  prospects  has  a 
material  immediate  value  on  account  of  this.  Very  often,  a  con- 
siderable part  of  the  preferred  has  to  be  used  for  greasing  the 
wheels.  Up  to  this  point,  with  slight  variations,  the  process  is 
as  old  as  the  modern  corporation. 

It  is  the  next  step  —  the  formation  of  the  holding  company  — 
which  has  caused  so  much  criticism.  As  a  device  for  the  injection 
of  water  the  efficiency  of  the  holding  company  compares  with 
the  high  finance  which  proceeded  it  as  a  high  pressure  fire  main 
does  to  a  garden  hose.  Thus,  a  banker  having  the  stock  of  several 
companies,  the  aggregate  of  which  produces  a  considerable  sum 
in  dividends,  forms  what  is  known  as  a  holding  company  and  he 
turns  the  stock  which  he  holds  into  this  company  for  what  is 
known  as  collateral  trust  bonds,  and  preferred  and  common  stock. 

company  as  to  make  it  susceptible  of  manipulation.  The  sa,le  was  nego- 
tiated to  a  firm  of  investment  bankers  in  New  York  at  a  price  considerably 
over  what  it  had  been  bought  at  in  small  lots  on  the  open  market.  The 
lawyers  received  $25,000  for  their  services.  The  new  owners  then  sold  it 
bag  and  baggage  just  as  they  got  it  to  a  prominent  Wall  St.  banking  house 
for  $500,000  more  than  the  purchase  price.  The  new  owners  gave  the 
company  a  pat  and  a  smack,  reorganized  it  and  sold  enough  bonds  to  pay 
them  back  all  they  had  put  into  it  and  something  besides.  How  many 
more  stories  have  been  added  to  the  house  since  then  I  do  not  happen  to 
know. 


SNAPPING  CORDS  7 

He  sells  the  bonds,  thereby  getting  cash  for  his  stock  which  he 
turned  into  the  company,  without  losing  control  of  the  individual 
company.  There  are  a  number  of  instances  where  several  small 
holding  companies  have  been  turned  into  one  large  holding  com- 
pany. The  end  is  not  yet. 

The  only  serious  defence  I  have  ever  heard  made  of  this  method 
of  financing  is  based  upon  a  belief  in  the  absolutism  of  private  prop- 
erty, for  certain  it  is  that  the  capitalization  of  a  company  under 
this  method  of  financing  has  no  relation  whatever  to  values. 

Of  the  $8,000,000,000  or  more  of  capital,  employed  in  electric, 
gas,  street  and  interurban  railway  companies,  nearly  five  and  a 
half  billion  dollars  are  controlled  by  holding  companies  and  their 
subsidiary  companies.  Holding  companies  control  76  per  cent, 
of  the  two  billion  dollars  of  capital  invested  in  electric  light  and 
power  companies;  two-thirds  of  the  one  and  one-third  billion 
dollars  in  artificial  gas  companies,  and  two-thirds  of  the  five  bil- 
lion dollars  of  capital  in  street  and  interurban  railway  companies.1 

The  N.  E.  L.  A.  Bulletin  states  that  "of  the  6129  towns  and 
cities  with  a  population  of  46,000,000  receiving  electric  service 
2691  with  a  population  of  36,400,000  are  served  by  140  holding 
companies." 

A  serious  obstacle  in  the  way  of  a  settlement  fair  to  both  sides 
is  the  deep  conviction  entertained  by  the  most  powerful  bankers 
that  a  widespread  program  of  municipal  ownership  and  municipal 
operation  is  more  or  less  imminent  in  this  country.     They  spend 
much  energy  and  revenue  to  prove  that  such  a  policy  would  be    "? 
ill-advised  and  that  the  drift  is  in  the  opposite  direction.    But     I 
actually  and  secretly  policies  are  based  upon  an  expectation  that^/ 
most  of  these  properties  will  be  taken  over  by  the  people  during - 
the  coming  generation.     The  present  high  rates  would  not  be 
"good  business"  if  these  properties  were  to  be  continued  in  pri- 
vate ownership.     I  have  been  told  by  those  high  in  the  banking 
world  that  the  intention  is  to  make  these  plants  yield  every  possi- 
ble penny  in  revenue  against  this  day  when  the  ownership  will 
change. 

Perhaps  it  is  with  purchase  by  the  public  in  view  that  such 
strenuous  efforts  are  being  made  to  secure  from  public  service 
commissions  the  validation  of  inventories  and  appraisals  based 

1  Brief  submitted  on  behalf  of  Public  Utility  Holding  Companies  to  the 
Interstate  Commerce  Committee  of  the  U.  S.  Senate. 


8  SNAPPING  CORDS 

on  procedures  and  principles  considered  unsound  in  other  business 
fields. 

The  value  of  the  property  engaged  in  the  so-called  "public 
f  service"  in  any  large  city  is  usually  in  excess  of  that  used  for  all 
other  public  purposes.  In  other  words,  the  utility  end  is  the  big 
/  end.  It  is  impossible  to  make  any  exact  statement  in  this  matter 
/  on  account  of  the  desperately  obscure  and  complicated  financial 
--  organization  and  statements  of  the  companies  controlling  the 
various  utilities.  Holding  companies  list  their  property  as  the 
value  of  stocks  and  bonds  held.  These  in  turn  come  from  other 
companies,  whose  property  is  largely  other  stocks  and  bonds. 
Sometimes  the  principal  holding  company  does  not  list  among  its 
liabilities  some  of  the  obligations  of  the  underlying  companies. 
The  whole  effect  is  to  prevent  any  one  not  on  the  inside  from  find- 
ing out  the  real  state  of  affairs,  either  as  to  total  securities  issued, 
total  liabilities  or  even  the  book  value  of  actual  property  held. 

Even  so  the  following  table  listing  the  value  of  (1)  the  several 
utility  properties  and  (2)  all  other  public  property  in  Philadelphia 
gives  some  picture  of  their  relative  financial  importance  and  a 
rough  idea  of  the  place  occupied  by  the  utilities  in  the  whole 
scheme  of  a  city.  No  claims  are  made  for  the  individual  figures 
used.  In  some  instances  they  are  little  more  than  guesses.1  To 
even  explain  why  these  figures  and  not  some  others  were  used 
would  have  required  more  than  my  allotted  time.  No  reference 
is  made  to  steam  railroads. 

1  References  indicate  some  of  the  sources  used  for  information. 


SNAPPING  CORDS 


Philadelphia  Utilities: 

Paper  value 
or 
value  measured 
by  securities 

An  estimate 
of  actual 
value  of 
property 

Street  Railways  

$200,000,000 

$100,000,000 

Electric  Company1  

50,000,000 

25  000  000 

Bell  Telephone2 

20  000  000 

10  000  000 

Keystone  Telephone  3  

9,000,000 

6  000  000 

City  Water  Works  4 

65  000,000 

65  000  000 

Northern  Liberties  Gas  Works  

750,000 

500,000 

Philadelphia  Gas  Works  (U.  G.  I.  lessee)  5 
Gasoline  Street  Lighting 

45,000,000 
250  000 

35,000,000 
200  000 

Miscellaneous:   Burglar  Alarm,    Message 
Telegrams,  etc.,  Garbage  

1        1,000,000 

500,000 

$391,000,000 

$242,200,000 

ALL  OTHER  PUBLIC  PROPERTY  IN  PHILADELPHIA  AS  OF 
DECEMBER  31,   1913 

Land $32,771,878.62 

Buildings 57,444,526.95 

Piers,  Wharves,  etc 2,330,742.70 

School  Property 25,600,000.00 

Miscellaneous  Structures,  Grade  Crossing 

Removals,  etc 12,395,775.54 

Streets,  Boulevards,  etc 56,500,000.00 

Bridges 17,200,000.00 

Sewers    35,401,247.06 

Equipment 7,224,837.57 

$246,869,008.44 

A  somewhat  similar  table  has  been  prepared  by  Ray  Palmer, 
Commissioner  of  Gas  and  Electricity,  Chicago,  giving  the  "value" 
of  the  utilities  of  Chicago: 

1  Testimony  before   Penn.  Public    Service   Commission  in  Cooke  et  al 
against  Phila.  Electric  Co. 

2  Testimony  before  P.  S.  C.  of  Pa.  and  exhibits  incident  thereto. 

3  Statement  furnished  by  Company. 

4  Estimate  made  by  officials  Bureau  of  Water. 

5  Annual  Report  Chief  Bureau  of  Gas,  1914. 


10 


SNAPPING  CORDS 


'   Securities 

Property 

Gross 
Earnings 

Net 
Earnings 

Gas      

$90,000,000 

$50,000,000 

$17,000,000 

$6  000  000 

Electric 

80  000  000 

65  000  000 

16  000  000 

5  000  000 

Telephone  

50,000,000 

35,000,000 

14,000,000 

3,000,000 

Elevated  Railroad  
Street  Railways 

95,000,000 
150  000,000 

40,000,000 
100  000  000 

8,000,000 
32  000  000 

3,500,000 
10  500  000 

Water  Works 

50  000  000 

50  000  000 

6  000  000 

2  500  000 

City  Electric  System  . 
Chicago  Tunnel  .... 

7,000,000 
66,000,000 

4,000,000 
20  000  000 

1,000,000 
500  000 

0 

o 

Miscellaneous:  Burglar 
Alarm,  Message  Tel- 
egrams, etc  

>    1,000,000 

500,000 

250,000 

0 

589,000,000 

264,500,000 

94,500,000 

30,500,000 

'  Generally  speaking  only  those  municipal  undertakings  which 
can  be  operated  at  a  profit  come  under  the  head  of  public  services 
or  are  known  as  utilities.  There  is  a  grim  sort  of  humor  in  the 
fact  that  they  are  the  only  activities  of  a  city  about  the  ownership 
and  operation  of  which  there  is  any  discussion. 

There  are  two  billions  in  the  securities  of  electric  light  and  power 
companies;  over  one  and  one-third  billions  in  artificial  gas  com- 
panies, and  approximately  five  billions  in  street  and  interurban 
railway  companies;  one  and  one-quarter  billions  in  telephones, 
—  approximately  eight  billions  in  above-mentioned  privately 
owned  utilities.  Cities  of  the  United  States  of  over  30,000  in 
population,  alone,  own  over  one  and  one-quarter  billion  dollars 
of  lands,  buildings  and  equipment  used  in  public  service  enter- 
prises. The  total  was  $1,326,158,240,  of  which  $909,591,279  was 
for  water  supply  systems,  and  $416,566,961  for  "other  public 
service  enterprises."  Cities  with  a  population  of  from  8,000  to 
^25,000  owned,over  a  decade  ago  (1903), approximately  $75,000,000; 
in  water  works  ($67,446,783)  and  electric  light  plants  ($5,439,747). 
Since  this  report  appeared,  these  cities  have  added  quite  exten- 
sively to  their  municipally  owned  and  operated  public  services, 
so  that,  including  other  small  cities,  it  is  safe  to  say  that  cities 
under  30,000  have  invested  in  municipally  owned  and  operated 
public  utilities  approximately  one  hundred  and  fifty  million 


SNAPPING  CORDS  11 

dollars.     Here  then  is  a  known  total  of  $10,650,000  invested  in 
public  utilities.1 

Fortunately  it  is  too  big  an  amount  for  any  financier  of  the 
present  generation  to  comprehend.  It  is  perhaps  an  anomaly 
to  state  that  one  of  our  greatest  safeguards  in  the  present  crisis 
in  utility  affairs  is  the  inability  of  those  who  happen  to  be  at  posts 
of  great  tactical  advantage  to  understand  and  utilize  their  oppor- 
tunities. The  game  is  one  for  giants  and  the  reins  for  the  most 
part  are  in  the  hands  of  those  who  do  not  understand  the  times. 
It  requires  some  broad  comprehension  of  human  currents  to  make 
effective  such  concepts  as  the  holding  company  and  nation-wide 
control.  When  the  world  is  talking  publicity  and  efficiency,  to 
continue  to  lean  on  bribery,  undue  influence,  intimidation,  monop-_^ 
oly,  and  the  secret  agreement,  is  suicidal. 

No  statement  of  present  conditions  would  be  fair  which  does 
not  pay  a  high  tribute  to  the  electrical  interests  for  the  business 
acumen  shown  in  the  co-operative  efforts  expended  on  the  develop- 
ment of  the  efficiency  of  generating  units  and  lamps.  This  experi- 
ment is  remarkable  as  well  for  the  breadth  of  the  co-operation 
as  for  the  significant  success  achieved.  While  this  joint  action 
on  the  part  of  many  interests  has  fostered  monopolisitc  control  i 
this  field,  the  exchange  of  patents,  as  between  the  two  big  manufac- 
turing electric  companies  and  the  founding  of  research  laboratories 
practically  the  common  property  of  an  industry,  are  in  themselves 
inspiring  examples  of  business  efficiency. 

Let  us  see  how  this  " courtesy"  about  which  I  spoke  a  moment 
ago  works  in  actual  practice.  Some  years  ago  the  Keystone 
Telephone  Company  —  a  competitor  of  the  Bell  —  secured  a 
franchise  to  lay  conduits  under  the  streets  of  Philadelphia.  While 
laying  the  conduits  needed  to  accommodate  its  telephone  wires, 
the  management  laid  hundreds  of  miles  of  extra  ducts  for  the 
purpose  of  selling  or  renting  them  at  some  future  time  either  to 
the  Philadelphia  Electric  Company  or  some  competing  electric 
company.  The  value  of  these  unused  conduits  has  been  vari- 
ously estimated  at  from  four  to  six  millions.  They  are  still  lying 
idle.2  For  six  or  eight  years  past  every  banker  and  financier  in 

1  For  further   details  see   King, — "Lower  Living  Costs  in  Cities,"  pp. 
305  ff. 

2  Since  writing  the  above  and  because  of  activities  mentioned  elsewhere 
these  conduits  have  been  rented  by  the  Philadelphia  Electric  Co.  for  thirty- 
five  years  at  a  minimum  annual  rental  of  $100,000,  with  option  to  purchase 
at  the  end  of  the  lease. 


12  SNAPPING  CORDS 

Philadelphia  has  known  about  the  availability  of  these  ducts. 
It  has  been  understood  by  utility  men  that  a  company  acquiring 
their  use  and  getting  current  either  by  purchase  or  by  building  a 
plant  of  its  own  could  sell  electric  current  in  Philadelphia  both 
for  public  and  private  use  at  rates  not  only  below  —  but  far 
below  —  those  charged  by  the  P.  E.  Co.  Such  rates  would 
permit  dividends  above  those  which  any  self-respecting  Pub- 
lic Service  Commission  would  allow.  Owing  to  the  misman- 
agement of  the  Philadelphia  Electric  Company,  its  excessive 
rates  and  especially  owing  to  the  small  number  of  customers 
it  serves  in  proportion  to  the  population,  this  competition 
proposition  was  a  peculiarly  attractive  one.  Notwithstanding 
the  assured  and  generally  admitted  success  of  any  scheme  to 
utilize  these  ducts  and  simply  out  of  " courtesy"  to  the  Philadel- 
phia Electric  Company,  no  one  in  responsible  position  has  made 
a  move  to  bring  them  into  use.  The  potent  leaders  in  the  utility 
camp  have  declared  in  favor  of  one  electric  company,  or  one  gas 
company,  or  one  telephone  company  to  a  city  and  woe  betide  the 
individual  or  concern  who  moves  for  a  competing  plant  or  the 
invasion  of  territory. 

Such  dicta  as  these  are  made  effective  in  various  ways.  Among 
the  agencies  which  force  compliance  with  standards  and  business 
practices  imposed  from  the  top  are  the  national  organizations 
provided  for  each  type  of  utility,  such  as  the  National  Electric 
Light  Association,  the  National  Commercial  Gas  Association, 
the  American  Electric  Railway  Association  and  others.  Prac- 
tically every  worker  in  these  lines  who  is  in  good  standing  with 
the  powers  that  be  is  forced  to  join  these  organizations  and  those 
who  do  not  enjoy  the  favor  of  those  at  the  top  are  practically 
barred  from  membership. 

A  typical  organization  of  this  type  is  the  National  Electric 
Light  Association  which  has  headquarters  in  the  Engineering 
Societies  Building  in  New  York.  To  the  uninformed  it  undoubt- 
edly has  the  standing  of  a  scientific  and  technical  society.  While 
it  does  a  considerable  amount  of  scientific  work  it  is  essentially  a 
trade  body  and  one  not  always  operating  quite  as  openly  as  would 
appear  to  be  for  the  best  interests  of  the  community.  In  order 
to  build  up  a  position  as  a  technical  society  this  association  for- 
merly gave  out  technical  information  as  do  other  national  engi- 
neering and  scientific  societies.  This  has  been  prohibited  because 


SNAPPING  CORDS  13 

the  members  do  not  want  this  information  to  fall  into  the  hands 
of  possible  business  rivals,  and  more  especially  into  the  hands  of 
public  service  commissions  and  others  investigating  their  methods. 

Notwithstanding  a  membership  of  many  thousands,  no  one 
can  join  the  N.  E.  L.  A.  who  does  not  work  for  a  company  which 
already  belongs  to  it.  Since  they  do  not  usually  allow  competing 
companies  to  join  no  individual  employee  of  a  competing  electric 
company  can  be  a  member.  Hence,  for  instance,  all  employe's 
of  the  Commonwealth  Power  Company  of  Milwaukee  —  a  com- 
pany doing  a  business  of  $400,000  annually  —  are  barred  from 
membership  in  what  is  supposed  to  be  the  representative  organi- 
zation of  the  industry,  because  this  company  competes  with  the 
Milwaukee  Electric  Railway  and  Light  Company.  The  signifi- 
cance of  such  social  and  professional  pressure  can  hardly  be  over- 
estimated 

The  N.  E.  L.  A.  also  works  in  close  harmony  with  and  supports 
such  sexless  public-opinion-forming  agencies  as  the  Bureau  of 
Public  Service  Economics,  the  Director  of  which  appeared  as  a 
speaker  at  a  public  meeting  in  the  City  Hall,  Philadelphia,  devoted 
to  electric  light  and  power  and  two  weeks  later  was  in  Washing- 
ton, D.C.,  choosing  the  "citizens"  who  later  appeared  before  a 
Congressional  Committee  in  opposition  to  the  purchase  by  the 
Government  of  the  street  railways  of  the  District  of  ColumbiaX 
There  are  quite  a  number  of  individuals  employed  by  these 
interests  whose  principal  duty  seems  to  be  to  go  about  addressing 
public  gatherings  and  thus  influencing  public  opinion.  Thus 
F.  C.  Henderschott  of  the  New  York  Edison  Company  spoke  at 
the  electric  meeting  at  the  Mayor's  office  just  referred  to  and  at 
the  Mayor's  conference.  In  neither  instance  did  he  state  his 
business.  In  fact  at  the  last  meeting  he  introduced  himself  as 
" a  private  citizen"  -presumably  without  interest. 

These  associations  hold  annual  meetings  in  different  parts  of 
the  country  and  spend  large  sums  in  printing,  entertainments, 
newspaper  and  other  advertisements.  Among  the  distinguished 
speakers  at  the  National  Electric  Light  Association  meeting  in 
Philadelphia  was  Elbert  Hubbard,  Editor  and  Publisher  of  the 
"Fra."  A  month  or  two  later  Philadelphia  was  flooded  with  the 
" electrical  number"  of  that  publication  containing  a  very  satis- 
factory picture  of  Mr.  Joseph  B.  McCall,  president  of  the  Phila- 
delphia Electric  Co.,  on  the  front  cover  and  a  laudatory  article 


14  SNAPPING  CORDS 

on  the  inside  in  which  he  was  described  as  "the  second  big  man 
born  in  New  York  City,"  and  "the  central  sun  of  the  convention 
around  whom  the  lesser  planets  revolved."  Among  the  latter 
were  Steinmetz,  Edison  and  Insull.  In  view  of  the  recent  testi- 
mony as  to  the  part  taken  by  the  "Fra"  in  the  Colorado  strike 
this  instance  is  interesting. 

The  constituent  companies  are  liberal  in  the  matter  of  defray- 
ing traveling  expenses,  so  that  at  the  Philadelphia  meeting  over 
five  thousand  members  of  the  N.  E.  L.  A.  were  in  attendance. 
The  expenses  of  the  meeting  were  about  $35,000. 

The  gatherings  always  secure  a  tremendous  amount  of  newspaper 
advertising  and  are  made  the  occasions  for  securing  wide  public- 
ity for  any  new  business  policy  with  which  those  at  the  top  hope 
to  bulwark  their  position.  Two  recent  instances  are  worthy  of 
consideration  here. 

In  1913  the  Rate  Research  Committee  of  the  N.  E.  L.  A.  an- 
nounced its  theory  of  rates  based  on  the  "value  of  the  service" 
which  of  course  is  nothing  more  than  a  new  rendition  of  "all  the 
traffic  will  bear."  Notwithstanding  a  vociferous  beating  of  the 
tom-toms,  there  were  no  large  number  of  converts  to  the  doctrine, 
—  outside  the  interested  members.  Cost  plus  a  fair  profit  is 
as  good  a  rule  in  this  field  as  any  other. 

Again  last  year  the  American  Electric  Railway  Association 
gave  forth  a  "Code  of  Principles"  which  advocated,  among  other 
things,  fair  returns  on  capitalization  no  matter  how  extravagantly 
watered,  exclusive  state  control  of  the  local  utilities  and  the 
holding  company.  The  same  report  advocated  the  creation  of  a 
financed  bureau  of  public  relations  which  is  to  have  among  its 
various  functions  that  of 

"Influencing  the  sources  of  public  education  particu- 
larly by  (a)  lectures  on  the  Chatauqua  circuit  and  (6)  for- 
mation of  a  committee  of  prominent  technical  educators 
to  promote  the  formulation  and  teaching  of  correct  prin- 
ciples on  public  service  questions  in  technical  and  eco- 
nomic departments  at  American  colleges,  through  courses 
of  lectures  and  otherwise." 

(The  italics  are  mine).  The  trend  of  reaction  must  have  seemed 
very  strong  to  have  warranted  such  a  pronunciamento. 

On  any  such  committee  of  "prominent  technical  educators" 
there  might  be  Mortimer  E.  Cooley,  Dean  of  the  Department  of 


SNAPPING  CORDS  15 

Engineering,  University  of  Michigan,  Alexander  C.  Humphreys, 
President  of  the  Stevens  Institute  of  Technology  and  George  F. 
Swain,  Professor  of  Civil  Engineering,  Harvard  University. 

A  short  while  ago  I  received  this  bit  of  advice  from  Professor 
Cooley,  which  is  as  good  for  you  as  it  is  for  me: 

"I  was  particularly  interested  in  your  views  on  the 
relations  of  public  service  corporations  to  the  public.  If, 
on  account  of  many  years'  experience  I  might  venture  a 
word  of  advice  to  all  younger  men  having  to  deal  with 
this  subject,  it  would  be  not  to  destroy  their  usefulness 
by  a  too  ardent  attitude  on  either  side.  The  people, 
and  the  corporations  too,  need  advice  sorely,  and  a  sane 
man,  or  a  man  with  sane  ideas,  sanely  expressed  can  do 
vast  good  at  this,  a  critical  time  in  our  country's  welfare." 

Professor  Cooley  gives  up  a  good  deal  of  his  time  now  to  mak- 
ing valuations  for  public  service  companies.  In  fact  his  teach- 
ing now  consists  in  giving  a  course  of  lectures  on  the  theory  of 
valuations. 

This  matter  of  utilities  in  their  relation  to  the  public  looms  so 
large  in  Professor  Cooley's  mind  that  we  find  him  making  it  the 
subject  of  a  commencement  day  address  June  11,  1914,  at  Worces- 
ter Polytechnic  Institute  under  the  seductive  title  of  "Engineer- 
ing in  a  Broader  Aspect."  In  this  address  we  are  told  that  in 
1911  there  was  an  "  average  rate  of  return  on  all  the  capital  (of 
all  utility  corporations)  of  but  2.3  per  cent."  and  "the  average 
rate  of  return  on  utility  investments  is  less  than  can  be  had  in 
our  savings-banks."1  Poor  utility  corporations!  Then  note  the 

1  In  a  circular  dated  April  21,  1913,  Henry  L.  Doherty  &  Co.,  investment 
bankers,  New  York  City,  give  the  following  table  of  net  earnings  and  receiver- 
ship risks  for  $100  of  outstanding  securities  in  (1)  utility  corporations,  (2) 
industrials,  and  (3)  railroads,  for  the  ten  years  from  1902  to  1912: 

Net  Earnings  Receivership  Risks 

(1)  Gas  and  Electric 8.45  0.37 

(2)  Industrials 7.79  2.07 

(3)  Railroads 4.25  1.84 

In  view  of  the  fact  that  the  securities  of  utility  corporations  are  from 
50  to  100  per  cent,  in  excess  of  the  invested  capital,  this  8£  per  cent,  return, 
taken  with  the  comparative  -  immunity  from  risk,  as  shown  on  above  table, 
seems  to  suggest  further  explanation  of  Dean  Cooley's  reference  to  savings 
bank  returns. 


16  SNAPPING  CORDS 

naievete  with  which  he  discusses  the  testimony  of  experts  appear- 
ing in  behalf  of  utility  corporations.  "We  must  deplore  the 
discounting  of  testimony  of  witnesses  —  the  apparent  neces- 
sity of  having  several  engineers  testify  to  the  same  facts.  Not- 
withstanding the  array  of  engineering  talent  the  issue  seems 
to  remain  in  doubt.  This  is  particularly  true  in  hearings  relat- 
ing to  public  service  properties.  There  is  the  feeling  that  en- 
gineers whose  testimony  is  favorable  to  the  corporation  have 
been  bought." 

Alexander  C.  Humphreys,  in  addition  to  being  president  of 
Stevens  Institute,  is  a  past  president  of  the  American  Society  of 
Mechanical  Engineers  and  president  of  the  Buffalo  Gas  Company. 
He  was  the  principal  expert  witness  appearing  for  the  Consolidated 
Gas  Company  in  the  famous  80  cent  gas  case.  He  uses  practi- 
cally every  public  address  as  the  occasion  for  the  laudation  of  big 
business  and  for  correspondingly  decrying  the  efforts  of  those 
who  feel  that  this  country  has  a  destiny  not  wrapped  up  in  that 
of  holding  companies.  President  Humphreys'  favorite  pastime  is 
holding  forth  against  municipal  ownership.  Any  man  who  believes 
that  there  ever  has  been  or  ever  will  be  conditions  under  which 
municipal  ownership  and  operation  might  be  tried  —  even  timidly 
—  is  his  natural  enemy.  An  obviously  irresponsible  article  in 
Public  Service,  a  trade  paper  devoted  almost  exclusively  to  an  un- 
discriminating  campaign  against  public  ownership,  afforded  Presi- 
dent Humphreys  a  text  for  the  principal  address  before  a  joint 
meeting  of  the  engineering  organizations  of  Philadelphia.  He, 
too,  is  sensitive  about  the  public  attitude  towards  engineers.  In 
New  York  City  on  February  17th  of  this  year  he  asked  his  audi- 
ence why  engineers  are  almost  invariably  excluded  from  boards 
and  commissions.  He  added  "we  are  submitting  too  readily  to 
the  implication  that  we  are  dishonest/'  and  "we  must  educate 
the  public"  and  "engineering  is  the  best  qualified  profession  to 
bring  back  this  country  to  a  sane  regulation  of  its  affairs."  He 
did  not  state  the  year  to  the  practices  of  which  we  should 
return. 

Prof.  George  F.  Swain  through  his  direction  of  the  valuation 
work  on  the  N.  Y.  Central  railroad,  and  more  especially  in  con- 
nection with  the  New  Haven  railroad,  may  be  considered  a  high 
authority  in  this  field.  For  capitalization  and  rate  making  pur- 
poses, he  argues  (l)  for  reproduction  value  without  any  depre- 


SNAPPING  CORDS  17 

elation,  (2)  also  for  an  allowance  for  "the  appreciated  value  of 
real  estate  .and  any  other  elements  which  have  appreciated 
without  corresponding  allowance  for  depreciation  of  elements 
which  have  depreciated/'  and  (3)  where  states,  counties  or  cities 
have  contributed  to  grade  crossing  work  the  amount  of  such  / 
contribution  —  amounting  in  Massachusetts  to  35  %  —  should 
properly  be  included  in  the  appraisal  of  a  railroad  property.1 

Professor  Swain's  views  on  political  economy  and  government 
are  quite  fully  given  in  his  presidential  address  before  the 
Ottawa  Convention  of  the  A.  S.  C.  E.,  June,  1913.  In  this 
paper  Professor  Swain  expresses  deep  anxiety  about  the  state  of 
the  nation  and  voices  considerable  distrust  of  democratic  ideals,  / 
and  says  that  "present  day  humanitarianism  leads  to  race  de- 
generacy." 

That  efforts  are  already  being  made  "to  influence  the  sources 
of  public  education"  is  shown  by  such  courses  of  lectures  as 
those  given  at  the  School  of  Commerce  of  Northwestern  Uni- 
versity by  William  D.  Kerr  until  recently  Director  of  the  Bureau 
of  Public  Service  Economics  and  more  particularly  those  given 
under  the  auspices  of  the  so-called  Finance  Forum  of  the  West 
Side  Y.  M.  C.  A.  in  New  York  City  where  every  speaker  is  the 
employee  of  a  privately  owned  and  privately  operated  utility  or 
allied  actively  as  shown  by  this  schedule : 

Magnitude  of  the  Electric  Light,  Power  and  Transportation 
Business. 

Address  by  T.  Commerford  Martin,  of  the  New  York 
Edison  Company,  and  Secretary,  N.  E.  L.  A. 
The  Public,  The  Investor  and  The  Holding  Company. 

Address  by  Francis  T.  Homer,  Counsel,  Bertron,  Gris- 
com  &  Co.,  investment  bankers,  New  York  City. 
Municipal  Ownership  of  Public  Utilities. 

Address  by  Arthur  Williams 2  of  the  New  York  Edison 
Co.  and  Past  President  National  Electric  Light  Associa- 
tion. 

Progress  of  the  Science  of  Lighting. 

Address  by  Dr.  Edward  P.  Hyde,  Director  of  the  Na- 

1  "Report  of  the  Joint  Commission  on  the  N.  Y.,  N.  H.  &  H.  R.R.,  1911." 

2  Mr.  Williams  is  another  man  used  freely  in  the  work  of  "molding  public 
opinion." 


18  SNAPPING  CORDS 

tional  Electric  Light  Association  (Nela),  Research  Labo- 
ratory of  the  National  Lamp  Works  of  the  General 
Electric  Company. 

Telephones  at  Home  and  Abroad. 

Address  by  T.  P.  Sylvan,  of  the  New  York  Telephone 
Company. 

Future  of  Public  Utilities. 

Address  by  Thomas  N.  McCarter,  President,  Public 
Service,  Co.,  of  New  Jersey. 

Centralization  of  Power  Supply. 

Address  by  Samuel  Insull,  President  of  the  Chicago, 
Edison  Co. 

Investments  in  Public  Utilities  and  How  Held. 

Address  by  W.  H.  Gardiner,  of  Henry  L.  Doherty  and 
Company,  investment  bankers  of  New  York  City. 

Future  Regulation  of  Public  Utilities. 

Address  by  William  D.  Kerr,  of  the  Bureau  of  Public 
Service  Economics. 

Some  Legal  Aspects  of  Regulations  of  Public  Service  Corporations. 

Address  by  Charles  F.  Mathewson,  Associate  of  Elihu 
Root,  of  Counsel,  Consolidated  Gas  Co. 

That  these  lectures  were  considered  wholly  "safe"  is  shown 
by  the  fact  that  they  were  all  published  in  pamphlet  form  and 
distributed  free  of  charge  by  a  Wall  Street  investment  banking 
house  of  high  reputation.  If  this  had  been  a  course  of  lectures  on 
steel  or  cotton  or  printing,  the  majority  of  those  given  would  have 
covered  the  technical  side  and  most  of  the  speakers  would  have 
represented  the  manufacturing  end.  In  this  course  it  will  be  noted 
that  the  whole  emphasis  is  on  relations  to  the  public  and  the 
marketing  of  securities. 

An  up-to-date  illustration  of  this  unity  of  interest  which  I  have 
called  " courtesy"  is  afforded  by  an  editorial  in  the  February 
issue  of  Aera,  the  official  organ  of  the  American  Electric  Railway 
Association: 

"Another  phase  of  this  meeting  at  Washington,  which 
is  highly  important  as  a  prognostication  of  future  strength 
and  power  in  the  battle  which  the  industry  is  to  wage, 
was  the  evidence  manifested  in  many  ways  that  the 


SNAPPING  CORDS  19 

manufacturing  interests  connected  with  the  industry  are 
prepared  to  cooperate  with  the  railway  men  in  the  work 
that  lies  ahead. 

"When  Mr.  Pierce,  speaking  for  the  Manufacturers' 
Association,  pledged  the  support  of  its  members,  it  was 
evident  to  those  who  had  felt  the  pulse  of  the  delegates, 
that  he  was  giving  utterance  to  no  idle  and  complimentary 
rhetorical  figure,  but  was  voicing  a  sentiment  manifested 
in  many  ways. 

"Mr.  Henry  as  well  as  Mr.  Pierce  pointed  out  the 
unity  of  interest  that  exists  between  the  two  branches  of 
the  art.  The  railways  cannot  suffer  unless  there  is  a 
reflex  felt  by  the  manufacturer.  The  interests  of  each 
are  affected  almost  to  an  equal  extent  by  adverse  con- 
ditions forced  upon  the  former.  A  glance  at  the  personnel 
of  those  Association  committees,  which  have  directly  to 
do  with  matters  connected  with  the  public,  shows  not  only 
that  the  Railway  Association  recognizes  how  important 
it  is  that  the  manufacturers  shall  be  enlisted  in  the  cause, 
but  shows  as  well  that  the  leaders  in  the  manufacturing 
industry  have  recognized  the  importance  of  their  coopera- 
tion and  have  made  the  sacrifice  of  time  and  brains  neces- 
sary for  the  work  they  are  called  upon  to  perform. 

"The  Washington  meeting  was  an  inspiration.    It  has 
•  sent  back  to  their  work  some  hundreds  of  men  imbued 
with  the  idea  that  at  last  a  concrete  practical  plan  has 
been  presented  for  improving  public  relations  and  resolved 
to  do  their  share  in  this  important  task.     Unity,  solidar- 
ity,   enthusiasm,    these    three    things    are    the    returns 
from  this  Mid- Year  meeting  and  in  addition  the  Amer- 
ican public  has  been  notified  that  this  Association  in  the 
words  of  President  Allen  has  at  last- 'found  a  voice.'  ' 
If  this  factor  of  "courtesy"  as  between  utility  corporations  has 
brought  about  virtually  united  action  among  the  utility  com- 
panies, please  remember  that  it  is  international  —  even  world-wide 
—  in  its  scope.    In  each  of  the  large  European  countries  there  are 
groups  of  bankers  and  financiers  working  in  this  same  field.    The 
entire  civilized  world  has  been  parcelled  out  and  "courtesy"  now 
becomes  international  and  prevents  the  invasion  of  the  other 
fellow's  territory.    In  New  York  you  find  the  Electric  Bond  and 


20  SNAPPING   CORDS 

Share  Company  acting  as  the  banking  end  of  the  General  Electric 
Company  with  a  relatively  small  capital  as  compared  with  the 
magnitude  of  its  operations.  In  Berlin  we  find  a  similar  $50,000,000 
corporation  for  the  construction  and  operation  of  electric  proper- 
ties. This  company  controlled  by  the  same  interests  as  control 
the  Deutsche  Bank  have  properties  almost  everywhere  except  in 
this  country.  If  asked  "Why?"  the  answer  would  probably  be 
"  Too  deep  in  the  business  of  owning  and  managing  electrical 
properties  for  it  to  be  wise  for  them  to  go  into  any  undertaking 
involving  opposition  to  the  established  interests  in  the  same 
field/'  and  "Do  not  wish  to  risk  antagonizing  similar  interests 
to  their  own  in  America." 

The  dominant  interests  in  each  nation  in  each  special  line 
have  become  much  of  the  same  mind  and  have  a  large  respect 
for  each  other.  These  large  international  companies  or  syndi- 
cates are  more  and  more  in  finance  and  manufacturing  making 
impossible  competition  such  as  we  find  in  other  lines.  It  is  a  fact 
generally  recognized  now  that  it  is  impossible  to  secure  capital 
for  a  municipal  or  competitive  utility  proposition  through  regular 
channels.  No  matter  how  good  such  a  utility  proposition  may  be, 
it  can't  be  financed  in  this  country  today  if  it  must  be  done  through 
bankers.  No  one  will  responsibly  deny  this  because  the  statement 
is  made  on  the  authority  of  too  many  bankers. 

The  situation  with  regard  to  buying  equipment  especially  in 
the  electrical  field  while  not  so  generally  understood  by  the  public 
is  almost  as  tight.  There  are  certain  factors  to  any  successful 
utility  enterprise,  such  for  instance  as  the  franchise,  the  capital, 
the  engineering  plans,  the  charter,  the  certificate  of  public  con- 
venience. If  any  one  of  these  items  is  missing  it  is  impossible  even 
to  get  a  bid  or  serious  attention  from  either  the  Westinghouse 
Company  or  the  General  Electric  Company  in  the  matter  of  an 
electric  plant  for  either  public  or  private  central  station  service. 
If  they  can  find  such  an  excuse  for  not  bidding  they  will  take  it. 
If  there  is  no  such  excuse  they  will  bid  for  one  of  two  reasons  — 
either  because  they  see  that  the  end  has  come  and  that  some- 
body is  going  to  get  the  business,  or  because  somebody  might 
go  to  jail  if  they  did  not  bid.  Mayor  Baker  of  Cleveland,  before 
he  bought  the  equipment  for  the  new  Cleveland  municipal  electric 
plant,  announced  that  if  there  were  no  bids  from  the  responsible 
manufacturers  he  would  at  once  take  up  the  matter  with  Congress 


SNAPPING   CORDS  21 

by  requesting  that  the  tariff  duty  be  thrown  off  foreign  machinery 
for  municipal  enterprises.  He  got  his  machinery. 

So  much  for  the  financial  and  manufacturing  phases  of  work  in 
the  utility  field.  In  my  next  lecture  I  will  take  up  the  difficulties 
connected  with  securing  technical  advice  and  expert  services. 

I  am  convinced  that  the  private  corporations  have  brought 
about  a  combination  in  this  field  which  is  too  tight  to  be  perma- 
nent. In  order  to  perpetuate  such  absolute  control  it  has  been 
necessary  to  introduce  into  these  companies  a  German  military 
system  of  discipline  which  is  more  and  more  resented  by  the 
great  majority  of  the  employees.  In  our  Philadelphia  companies 
public  discussion  of  utility  policies  and  methods  is  confined 
usually  to  one  executive  head  and  information  is  never  given  out 
except  through  this  one  source.  As  a  rule  the  real  authority  and 
responsibility  in  these  companies  is  at  the  top  and  the  top  is  usually 
located  in  far  away  New  York.  Young  men  of  ability  and  promise 
are  hesitating  more  and  more  to  ally  themselves  with  interests 
which  almost  necessarily  place  them  in  opposition  to  the  trend  of 
the  times  and  the  best  interests  of  the  State.  I  am  not  very 
sanguine  about  some  of  the  older  men  seeing  the  light!  But  I  am 
hopeful  that  the  generation  now  coming.into  responsible  charge  is 
going  to  see  to  it  that  these  great  properties  are  operated  in  con- 
formity with  the  highest  ideals  of  our  people.  Happily  this  course 
seems  to  be  the  one  which  will  in  the  long  run  conserve  the  interests 
of  a  large  majority  of  the  stockholders  in  these  properties. 


LECTURE   II 

THE  drift  towards  municipal  ownership  and  operation  in  all 
parts  of  the  country  is  unmistakable.  From  present  indications 
the  change  from  private  to  public  ownership  in  municipal  utili- 
ties will  come  more  rapidly  than  either  the  cities  or  the  com- 
panies themselves,  today,  realize.  Apparently  the  principle  of 
state  regulation,  as  it  is  at  present  understood  and  practiced,  is 
doomed.  The  louder  the  companies  shout  for  it  the  less  of  a 
panacea  it  seems.  The  rising  tide  of  home  rule  must  necessarily 
bring  with  it  a  larger  and  larger  measure  of  local  regulation  of 
utilities.  Through  all  the  agitation  for  the  three  methods  of 
state  and  local  regulation  and  municipal  operation  runs  an  insist- 
ent demand  for  efficiency  and  the  widest  possible  publicity  both 
as  to  costs  and  principles  of  management. 

Before  the  recent  Conference  of  American  Mayors  in  Phila- 
delphia, Clarke  M.  Rosecrantz,  general  counsel  of  the  Milwaukee 
Electric  Light  and  Railway  Company  said : l 

"If  the  members  of  this  conference  really  desire  to 
save  the  public  money,  I  think  their  attention  should  first 
be  directed  towards  securing  an  efficient  and  economical 
management  of  the  affairs  which  properly  belong  to  the 
municipality.    There  is  plenty  of  opportunity  in  that  field 
and  when  it  can  be  shown  that  those  affairs  are  efficiently 
and  economically  conducted  it  will  be  time  enough  to 
consider  taking  on  the  burden  of  operating  public  utilities." 
Personally  I  am  opposed  to  municipal  ownership  —  at  least  for 
the  present  —  but  I  think  Mr.  Rosecrantz  has  put  his  finger  on  the 
only  real  argument  that  can  be  brought  against  it.    And  on  prin- 
ciple I  am  opposed  to  our  cities  taking  on  anything  more,  simply 
because  we  have  our  hands  full  now  in  learning  the  possibilities 
of  municipal  government.     The  demands  for  the  expenditure  of 
money  and  talent  in  the  other  parts  of  the  municipal  field  are  so 

1  "  Public  Policies  as  to  Municipal  Utilities,"  The  Annals  of  the  Ameri- 
can Academy  of  Political  and  Social  Science,  January,  1915,  p.  270. 

[221 


SNAPPING  CORDS  23 

insistent  and  widespread  that  it  would  probably  be  for  the  best 
interests  of  our  municipalities  if  municipal  operation  could  be 
postponed  for  a  while.  But  unless  the  attitude  of  the  private 
companies  very  largely  changes  within  the  course  of  the  next  few 
years  our  cities  will  probably  decide  that  the  present  and  obvious 
disadvantages  of  municipal  operation  are  inconsiderable  as  com- 
pared with  the  burden  which  the  system  of  private  ownership 
places  upon  us.  If  present  tendencies  are  continued  private  com- 
panies will  be  taken  over  in  about  the  following  order:  water 
first,  then  electric,  gas  and  street  railways. 

I  am  not  opposed  to  municipal  ownership  for  the  fool  reason 
that  it  has  been  tried  elsewhere  and  found  a  failure.  This  is  not 
true  and  most  of  those  who  utter  the  statement  know  that  it  is 
not  true.  Nor  am  I  opposed  to  it  on  the  ground  that  an  American 
city  is  unable  to  operate  a  utility  efficiently  and  economically. 
We  both  own  and  operate  our  water  works  in  Philadelphia.  We 
manufacture  as  good  water  and  as  efficiently  as  any  water  works 
in  the  United  States  operating  under  similar  conditions.  On  the 
other  hand  our  electric  company  which  is  owned  and  operated 
privately  does  about  as  near  nothing  for  our  community  as  is 
humanly  possible.  It  has  the  most  inconsistent  rate  schedule  in 
the  United  States,  sells  the  smallest  quantity  of  current  com- 
pared to  the  total  current  manufactured  in  any  large  city  and  it 
charges  the  highest  rates.  Everything  considered  no  city  govern- 
ment could  make  a  worse  fist  of  any  proposition  than  the  Phila- 
delphia company  has  of  its  opportunity.  If  a  city  can  operate 
its  police  and  its  fire  departments  upon  which  it  earns  nothing 
and  do  it  efficiently  it  can  operate  electric  and  gas  properties  which 
are  almost  the  simplest  manufacturing  propositions  in  the  world. 
But  remember  that  it  does  not  make  any  difference  who  owns  or 
who  operates  these  properties.  The  big  question  is  how  are  they 
operated.  If  the  private  companies  furnish  good  service  and  fair 
rates,  give  them  protection,  a  free  field  and  a  square  deal.  If 
they  fail  in  these  essentials  however  any  self-respecting  city  will 
call  the  bluff  by  insisting  on  public  ownership  and  public  opera- 
tion. 

While  state  regulation  certainly  has  much  to  recommend  it, 
especially  as  to  accounting,  issuance  of  securities,  etc.,  it  is  in  the 
matter  of  rate  fixing  based  on  an  assumption  that  the  operation  of 
municipal  utilities  has  reached  a  stage  that  permits  of  a  more 


X 


24  SNAPPING   CORDS 

scientific  and  exact  treatment  than  really  is  possible.  There  are 
relatively  few  accepted  standards  in  this  field  and  almost  nothing 
of  cost  keeping  or  a  real  equivalent.  Thumb  rule  and  personal 
opinion  everywhere  abound  and  what  is  even  more  regrettable  the 
several  industries  are  to  a  very  large  extent  operated  on  false 
assumptions  made  necessary  for  the  protection  of  fictitious  values. 
The  principle  of  price  regulation  in  private  industry  at  the  present 
time  is  generally  accepted  as  impossible  on  account  of  the  lack 
of  definite  standards.  The  problem  is  almost  as  difficult  in  the 
utility  field.  The  public  is  asked  to  look  upon  the  deliberations  of 
public  service  commissions  as  scientific  and  exact  while  insiders 
know  that  the  method  of  state  regulation  carried  on  under  the 
most  favorable  circumstances  is  a  hit  or  miss  method. 

Then  again  we  have  been  rushed  into  this  era  of  state  regulation 
with  such  rapidity  that  humanly  speaking  it  is  impossible  for  any 
commission  to  more  than  scratch  the  surface  of  the  field  that  has 
been  assigned  to  it.  In  order  to  get  away  from  what  the  com- 
panies considered  the  rigors  of  local  control  and  for  other  reasons 
they  have  not  only  helped  the  people  to  place  all  authority  in 
such  matters  in  the  hands  of  the  state  commissions  but  have  done 
almost  nothing  to  assist  these  commissions  in  the  proper  co-ordina- 
tion and  performance  of  these  new  and  extensive  duties.  In  fact 
there  are  reasons  for  believing  that  in  some  instances  the  com- 
panies have  been  at  some  pains  to  overwhelm  the  commissions  by 
placing  before  them  relatively  simple  matters  in  tremendous  detail. 
The  rate  case  of  the  Pittsburg  Chamber  of  Commerce  against  the 
Bell  Telephone  Company  of  Pennsylvania  now  being  argued  before 
the  Pennsylvania  State  Service  Commission  is  a  case  in  point. 
The  company. in  this  instance  is  said  to  have  spent  upwards  of 
$250,000  in  laying  before  the  Commission  a  mass  of  undigested 
material.  In  almost  every  rate  case  the  effort  seems  to  be  to 
raise  as  many  issues  as  possible  without  regard  to  whether  they 
are  pertinent  or  not. 

Another  important  reason  why  confidence  in  state  regulation 
seems  to  be  on  the  wane  is  that  many  of  the  laws  creating  public 
service  commissions  have  been  drafted  with  a  view  to  giving  an 
unfair  advantage  to  the  private  companies.  The  Pennsylvania 
law,  for  instance,  was  so  amended  during  its  passage  that  it 
satisfies  no  one  except  a  small  minority  of  the  public  utility  com- 
panies who  still  believe  in  the  methods  of  twenty  years  ago  and 


SNAPPING   CORDS  25 

who  continue  to  make  their  appeal  to  the  god  of  might  rather  than 
to  the  god  of  right.  The  methods  under  which  such  legislation  is 
sometimes  ground  out  are  pertinently  illustrated  by  this  very  law. 
The  original  act  was  drawn  by  a  committee  of  citizens  represent- 
ing different  parts  of  the  state.  The  committee  was  made  up  of 
those  who  had  made  a  special  study  of  the  principles  of  state  regu- 
lation as  practiced  in  other  parts  of  the  country.  The  bill  that 
was  presented  to  the  legislature  seemed  to  include  the  best  features 
of  all  the  existing  public  service  laws.  As  finally  passed  the  act 
was  thoroughly  emasculated.  A  study  of  the  texture  of  the  paper 
upon  which  the  several  amendments  were  written  and  the  style 
of  typewriting  used  showed  that  every  one  of  the  amendments  > 
made  in  this  bill  was  drawn  by  two  very  influential  Penn- 
sylvania public  service  companies. 

The  provisions  of  the  national  constitution  forbidding  the  tak- 
ing of  property  without  "due  process  of  law"  gives  the  companies 
a  great  advantage  over  the  cities  in  litigation  before  commissions 
because  it  properly  prevents  confiscation.  If  confiscation  itself 
or  litigation  charging  confiscation  are  to  be  avoided  the  commis- 
sions must  necessarily  leave  an  ample  margin  over  and  above 
cost  plus  a  fair  profit  in  the  fixing  of  rates.  This  is  an  inherent 
disadvantage  in  the  cities'  side  of  any  such  discussion.  While  it 
has  properly  been  easy  for  the  companies  to  invoke  the  basic  law 
to  prevent  the  imposition  of  rates  unfair  to  the  company,  the 
cities  have  had  very  little  success  in  the  last  generation  in  in- 
voking the  common  law  in  preventing  the  companies  from 
charging  rates  unfair  to  the  cities  and  otherwise  imposing  upon  ^ 
them. 

The  work  that  comes  before  public  service  commissions  is  very 
largely  engineering  and  yet  there  are  almost  no  engineers  on  the  v 
commissions.  The  profession  of  engineering  is  unanimously  in 
favor  of  commissions  made  up  very  largely  of  men  with  engineer- 
ing training.  I  discussed  the  probable  reasons  for  this  failure  to 
appoint  engineers  in  a  paper  called  "Some  Controlling  Factors  in 
Municipal  Engineering"  read  recently  before  the  American  Society 
Mechanical  Engineers.  Some  of  my  professional  associates  did 
not  like  the  suggestion  that  the  failure  to  appoint  engineers  to 
these  positions  was  on  account  of  their  too  close  affiliations  with 
the  corporation  side  of  the  questions  to  be  discussed.  I  regret  as 
much  as  they  do  the  conditions  which  apparently  makes  for  the 


, 


26  SNAPPING  CORDS 

wisdom  of  not  appointing  engineers  —  and  especially  electrical 
engineers  —  on  these  commissions,  but  I  do  not  agree  with  them 
that  if  the  condition  is  there  that  anything  is  to  be  gained  by 
not  facing  it.  If  conditions  have  been  such  in  this  country  dur- 
ing the  last  generation  that,  for  instance,  the  organization  rep- 
resenting an  entire  profession  has  been  so  diverted  that  the 
search  after  truth  is  no  longer  its  guiding  star,  surely  it  is  well  to 
recognize  the  fact  that  other  professions  which  may  be  subject 
to  the  same  influences  may  take  the  necessary  steps  for  their 
protection.  At  a  time  when  a  great  majority  of  the  appointees 
to  these  commissions  are  lawyers  there  is  some  underlying  reason 
why  engineers  are  almost  never  appointed  to  them.  It/does  not 
seem  to  me  that  the  public  loves  a  lawyer  any  better  than  an 
engineer  —  perhaps  not  quite  as  much.  But  there  is/a  feeling  that 
even  a  lawyer  can  see  two  sides  to  a  question  and  may  be  success- 
ful in  maintaining  either  of  them. 

A  large  number  of  the  appointments  to  these  commissions  are 
made  for  political  considerations  and  without  regard  to  technical 
fitness.  A  good  example  of  this  practice  is  seen  in  the  first  New 
York  district  where  out  of  a  commission  of  five  men,  Edward  E. 
McCall,  late  Tammany  candidate  for  Mayor  of  New  York,  is 
Chairman  and  J.  Sergeant  Cram,  one  of  the  leading  sachems  of 
Tammany  Hall,  is  another  member.  Experience  is  proving  that 
even  where  good  men  are  developed  they  do  not  remain  perma- 
nently on  the  commission.  In  this  a  public  service  commissioner- 
ship  seems  to  differ  from  a  seat  on  the  bench.  A  friend  of  mine 
who  recently  visited  the  home  cities  of  a  large  number  of  com- 
missions made  the  comment  that  almost  invariably  he  found  the 
efficient  commissioners  looking  upon  their  work  as  stepping  stones 
to  higher  political  preferment.  In  other  words  to  be  a  good 
public  service  commissioner  does  not  appear  to  be  an  end  in  itself. 
As  long  as  such  service  is  only  looked  on  as  a  stepping  stone  to 
something  beyond  or  as  merely  a  means  of  paying  political  debts 
by  assuring  non-interference  with  corporate  contributors,  the 
system  will  suffer.  Again  it  appears  to  be  the  case  that  whenever 
a  commissioner  gets  to  the  point  where  he  knows  enough  to  really 
deal  justly  with  the  companies,  the  latter  make  every  effort  to 
have  him  removed.  Only  on  this  ground  can  be  explained  the 
persistent  fight,  for  instance,  which  is  now  being  made  against 
the  reappointment  of  Milo  R.  Maltbie  of  the  First  New  York 


SNAPPING  CORDS  27 

District,  who  has  done  as  much  to  make  state  regulation  workable 
as  almost  any  other  man  in  the  country. 

It  is  a  safe  statement  that  a  governor  hardly  ever  appoints  a 
public  service  commissioner  without  at  least  consulting  the  lead-  \J 
ing  men  in  the  corporations  which  that  same  commissioner  is  to 
regulate.  Corporations  in  approving  or  disapproving  candidates 
use  a  type  of  sardonic  wisdom  which  has  grown  out  of  their  experi- 
ence. For  instance,  I  heard  it  stated  the  other  day  by  a  man  in 
authority  that  the  corporations  never  objected  to  the  appoint- 
ment of  an  honest  and  able  young  lawyer  if  he  had  little  or  no 
practice,  because  it  had  been  their  experience  that  men  so  situated 
could  be  depended  upon  not  to  be  too  rigorous  in  their  decisions 
against  utility  companies.  Again  there  are  a  great  many  instances 
where  corporations  have  worked  for  the  appointment  of  high-toned 
but  weak-kneed  advocates  of  the  rights  of  the  people.  This  prac- 
tice makes  the  records  appear  all  right  but  the  results  all  wrong. 

Another  cause  seriously  operating  against  the  principle  of  state 
regulation  is  the  almost  entire  absence  in  practice  of  accepted 
theories  of  valuation.  Among  the  economists  there  is  about  as 
reasonable  an  agreement  as  to  the  main  questions  affecting  valua- 
tions as  could  be  expected.  There  is,  however,  the  greatest  dis- 
parity between  the  accepted  theories  of  economists  and  the 
preachments  and  practices  of  those  who  usually  testify  in  such 
matters  before  public  service  commissions.  In  almost  every  im- 
portant case  some  novel  principle  is  advanced  with  apparent  con- 
fidence and  no  matter  how  far  it  may  be  from  previous  practice 
or  how  bitterly  it  may  clash  with  the  tenets  of  ordinary  business. 
In  other  words  whatever  theory  of  valuation  may  seem  necessary 
to  escape  the  omnipresent  ghost  of  watered  securities  finds  utter- 
ance through  some  individual  or  agency  of  high  standing. 

It  seems  apparent  that  those  who  are  in  control  of  the  utility 
situation  deprecate  any  effort  to  establish  a  generally  accepted 
code  of  principles  of  valuation  at  this  time.  During  the  valuation 
of  the  railroads  by  the  Interstate  Commerce  Commission  and 
during  the  process  of  the  absorption  of  the  water  in  the  utility 
stocks,  such  a  code  might  easily  be  troublesome.  Sometime  ago  a 
distinguished  committee  was  appointed  by  the  President  of  the 
American  Society  Civil  Engineers  "to  promulgate  principles  and 
methods  for  the  valuation  of  railroad  properties  and  other  public 
utilities."  In  due  season  a  progress  report  of  this  committee  was 


28  SNAPPING  CORDS 

printed  and  issued  to  the  membership.  But  probably  owing  to 
certain  heterodox  theories  which  it  contained  every  effort  has  been 
made  not  only  to  prevent  its  dissemination,  but  quite  contrary 
to  the  very  usual  practice  in  such  matters  it  is  now  impossible  to 
obtain  through  the  society  copies  of  this  progress  report.  Three 
vacancies  in  the  committee  that  prepared  the  report  have  recently 
been  filled  by  those  closely  associated  with  railroads  and  railroad 
affiliations. 

Owing  to  the  nation-wide  control  exerted  by  the  private  com- 
panies they  can  successfully  insist  on  unfair  or  false  standards. 
Practically  all  the  present  street  lighting  by  gas  and  gasoline  in 
the  United  States  is  in  the  control  of  one  company  or  one  interest. 
This  makes  it  easy  for  this  combination  to  advertise  the  ordinary 
gasoline  street  lamp  as  a  60-candle  power  lamp  when  it  is  usually 
not  40-candle  power.  This  is  one  of  the  many  tricks  through  which 
these  interests  have  " beaten"  up  —  and  I  use  the  word  advisedly 
—  every  competitor.  If  the  ability  of  the  lamp  to  give  60-candle 
power  is  questioned  it  might  be  explained  that  this  60-candle 
power  means  a  lamp  which,  if  taken  to  a  laboratory,  re-equipped 
with  a  new  mantle  and  filled  with  high  grade  gasoline,  can  be  made 
to  give  60-candle  power  in  the  laboratory.  But  there  are  probably 
several  hundred  thousands  on  the  streets  of  the  United  States 
today  that  give  an  actual  candle  power  little  above  or  below  40- 
candle  power,  no  matter  what  they  call  it. 

Cost  keeping  in  the  utility  industries  should  be  a  simple  matter 
as  compared,  for  instance,  with  cost  keeping  in  almost  any  manu- 
facturing enterprise.  In  fact,  a  utility  compares  with  what  are 
known  as  "tonnage"  works  in  the  manufacturing  field  where  not 
only  the  product  is  uniform  but  where  the  raw  materials  are  both 
uniform  and  few  in  number.  In  such  industries  cost  keeping  is  a 
simple  matter  and  one  involving  a  minimum  of  expense.  In  view 
of  this  fact  the  attitude  of  the  owners  of  public  service  corpora- 
tions toward  cost  keeping  is  not  only  not  easily  understood  but 
it  is  almost  unbelievable.  Before  our  own  public  service  com- 
mission in  Pennsylvania,  the  Philadelphia  &  Reading  Railway 
recently  officially  stated  that  to  secure  the  cost  of  carrying  a  ton  of 
coal  from  their  mines  ibo  the  City  of  Philadelphia  was  a  problem 
practically  incapable  of  solution.  In  another  rate  case  the  legal 
representative  of  the  Philadelphia  Electric  Company  stated  that 
it  was  impossible  to  segregate  the  plant  used  for  the  public  lighting 


SNAPPING  CORDS  29 

from  that  used  for  private  lighting.  No  railroad  in  the  country 
can  give  the  difference  in  cost  between  handling  a  ton  ol  miscel- 
laneous freight  over  a  four  track  main  line  and  that  of  handling  a 
ton  of  hay  over  a  single  track  branch  far  from  the  centers  of 
population.1 

Another  principle  in  which  the  companies  profess  to  believe  and 
which  acts  as  a  great  deterrent  to  the  intelligent  presentation  of  |/ 
a  rate  case  is  that  costs  secured  in  one  city  have  no  appreciable 
relation  to  work  of  a  similar  character  in  another  city.  The  com- 
panies have  been  so  successful  in  pushing  this  theory  that  it  is 
most  unusual  that  cost  factors  secured  in  one  locality  can  be  used 
in  a  case  affecting  rates  in  another  place.  But  it  is  true  neverthe- 
less that  most  of  the  factors  that  go  to  make  up  electric  or  gas 
costs,  for  instance,  are  essentially  uniform  throughout  the  country. 
Where  they  are  not  the  same,  they  usually  vary  for  well  recog- 
nized reasons  for  most  of  which  definite  factors  may  be  deter- 
mined. In  the  generation  of  electric  current  there  are  only  two 
cost  factors  of  importance  which  vary  materially  —  first,  labor  and 
second,  coal.  The  variation  in  the  price  of  coal  can  be  definitely 
determined  and  the  difference  in  the  cost  of  labor  as  between  two 
places  can  be  fixed  within  a  small  factor  of  error.  A  third  impor- 
tant point  of  variation  and  one  not  so  readily  determined  affects 
only  the  cost  of  distribution,  i.e.,  the  extent  of  territory  served. 
The  factors  which  must  be  included  in  all  localities  make  up  by 
far  the  larger  part  of  the  cost.  That  part  of  the  total  cost  which  is 
represented  by  variations  between  cities  while  not  negligible  is  of 
far  less  importance.  As  a  matter  of  fact,  the  companies  are  a  bit 
inconsistent  as  to  this  inter-city  aspect  of  rates  since  they  oppose 
the  reduction  of  rates  in  some  places  for  fear  such  reduction  will 
make  higher  rates  appear  wrong  elsewhere.  Regulation  of  course 
means  that  in  some  instances  a  company  is  not  allowed  to  reduce 
rates  as  much  as  it  would  like  to.  The  attitude  of  all  classes  of 

1  Docmt.  950  Pa.  P.  S.  C.,  page  427,  H.  E.  Bellis,  N.  W.  Business 
Men's  Ass'n  et  al.  v.  P.  &  R.  R.  R.  Co.  et  al 

Theodore  Voorhees,  President  Phila.  &  Reading  Railroad:  "You  cannot 
get  at  the  cost  of  any  item  of  railroad  service.  ...  It  never  has  been  done. 
I  do  not  believe  it  ever  will  be  done." 

Robert  H.  Large,  General  Coal  Freight  Agent,  P.  R.  R.:  "You  can't 
take  into  consideration  the  cost  of  the  service  for  two  reasons.  In  the  first 
place  you  can't  ascertain  the  cost.  That  is  practically  impossible,  in 
freight  traffic  between  commodities." 


30  SNAPPING  CORDS 

utilities  toward  this  very  important  question  of  costs  can  only  be 
characterized  as  being  pitifully  helpless. 

The  absence  of  even  a  beginning  of  a  cost  system  is  the  only 
excuse  that  I  have  been  able  to  find  why  men  who  dominate  the 
business  policy  of  the  Philadelphia  Electric  Company  can  face  a 
rate  schedule  which  provides  that  one  customer  shall  be  charged 
0.7  cents  per  unit  of  electric  current  and  another  customer 
charged  15  cents  or  over  twenty  times  as  much  for  the  same 
commodity. 

Perhaps  if  the  gas  industry  had  an  adequate  cost-keeping  sys- 
tem the  men  at  the  head  of  it  would  understand  the  reasons  why 
gas  is  sold  so  much  lower  in  England  than  in  America.  In  at  least 
one  English  town  it  sells  for  16  cents  for  power  purposes.  One 
dollar  is  the  " classic"  rate  in  the  United  States. 

While  there  are  undoubtedly  over  10,000  utility  companies 
operating  in  this  country  today  I  think  I  am  safe  in  saying  that 
there  is  only  one  that  has  determined  its  costs  in  such  a  way  as  to 
have  them  stand  any  fair  test.  Recently  at  a  meeting  of  the 
Society  to  Promote  the  Science  of  Management  at  New  Haven, 
Conn.,  I  heard  Mr.  Charles  Day  of  the  firm  of  Day  &  Zimmer- 
man, Consulting  Engineers,  describe  the  splendidly  conceived 
and  wonderfully  efficient  system  used  by  the  Penn.  Central 
Company,  operating  in  and  to  the  east  and  west  of  Altoona, 
Pa.  I  know  of  no  research  in  the  industries  of  a  higher 
order  or  work  that  carries  with  it  greater  possibilities  for  the 
future. 

Any  study  of  the  principle  of  state  regulation  in  practice  must 
include  some  comment  on  the  character  of  the  expert  testimony 
presented  before  the  commissions.  It  is  in  this  matter  perhaps 
that  the  cities  are  at  the  greatest  disadvantage.  In  railroading 
for  instance  there  is  the  theory  that  a  man  cannot  be  an  efficient 
railroad  employee  or  have  adequate  understanding  of  the  prob- 
lems involved  unless  he  has  served  the  railroad  all  his  life.  Among 
those  who  hold  the  higher  positions  in  the  railroad  world  there 
are  almost  none  who  have  not  been  continuously  in  the  employ 
of  the  railroads.  Men  do  not  pass  from  another  industry  into 
railroading.  There  is  another  rule  which  I  have  been  told  is 
almost  as  universal  —  that  a  man  who  has  once  left  the  railroad 
service  cannot  go  back  into  it,  or  rarely  does  do  so.  A  railroad 
expert  then  is  necessarily  one  who  not  only  has  all  the  prejudices 


SNAPPING  CORDS  31 

that  come  with  lifelong  association  with  a  single  industry  but 
who,  by  no  possible  chance,  can  have  had  intimate  association 
with  the  principles  and  practices  of  any  other  industry.  It  is  in 
consequence  of  this  that  in  any  railroad  rate  case  or  in  any  other 
matter  involving  railroad  operation  the  cities  must  depend,  if  they 
are  to  get  real  experts,  on  the  services  of  men  who  have  all  the 
prejudices  that  come  from  long  association  with  the  railroad  point 
of  view  and  no  other. 

In  municipal  utility  rate  cases  the  cities  must  depend  for  their 
experts  on  the  relatively  few  men  of  high  standing  and  broad 
experience  who  work  for  publicly  owned  and  operated  companies, 
or  those  even  rarer  men  who  for  one  reason  or  another  as  for 
instance  because  they  operate  competing  plants  have  broken  away 
from  the  system  which  controls  the  viewpoints  and  activities  of 
the  great  majority  of  men  who  serve  the  private  companies  espe- 
cially in  electricity,  telephones,  street  railways  and  gas.1  The 
private  interests  make  every  effort  of  course  to  keep  in  their  em- 
ploy the  efficient  men  and  especially  those  who  in  addition  make 
good  witnesses.  There  are  of  course  many  men  who  operate  city 
plants  who  do  not  make  good  witnesses.  So  that  in  the  choosing 
of  witnesses  for  the  city  side  in  rate  cases  the  field  is  extremely 
limited. 

Let  me  repeat  that  most  cities  are  at  almost  a  total  disadvantage 
in  securing  legal  and  engineering  advice  of  an  effective  kind  in 
any  utility  matter.  Any  city  that  does  not  start  out  with  the 
fullest  possible  realization  of  this  fact  is  likely  to  meet  with  dis- 
aster. In  the  paper  previously  referred  to  "Some  Factors  in 
Municipal  Engineering"  read  before  the  American  Society  of 
Mechanical  Engineers,  I  said  that  it  was  "practically  impossible 
to  secure  the  services  of  those  with  reputations  already  made  in 
the  electrical  field."  President  Humphreys  and  four  other  em- 
ployees of  utility  companies  who  discussed  the  paper  took  ex- 
ception to  this  statement.  For  what  reason  they  did  so  I  cannot 
imagine  for  they  not  only  know  it  is  essentially  true  but  I  should 

1  In  the  electric  rate  case  against  the  Philadelphia  Electric  Company  we 
were  fortunate  in  having  as  experts  Ray  Palmer,  Commissioner  of  Gas  and 
Electricity,  City  of  Chicago,  Frederic  W.  Ballard,  Commissioner  of  Lighting, 
City  of  Cleveland;  Clayton  W.  Pike,  Chief  of  the  Electrical  Bureau,  and 
Judson  C.  Dickerman,  Chief  of  the  Gas  Bureau,  both  of  the  City  of 
Philadelphia;  and  O.  M.  Rau,  General  Manager,  Commonwealth  Power  Co., 
Milwaukee,  Wis.,  and  George  H.  Morse,  Wheeling,  West  Va. 


32  SNAPPING  CORDS 

think  they  must  know  that  I  know  it  is  so.  The  utility  com- 
panies and  I  have  been  at  such  close  quarters  during  the 
last  three  years  that  we  understand  each  other  pretty  well. 

To  recount  our  experiences  in  this  matter  at  this  point  would 
hardly  convince  anyone  not  now  so  convinced.  It  can  be  said 
however  that  we  have  been  in  direct  personal  touch  with  a  suffi- 
ciently large  number  of  the  most  representative  engineering  firms 
practicing  in  the  electrical  field  to  know  beyond  any  possibility 
of  doubt  that  to  get  service  —  service  of  any  value  —  along  these 
lines,  the  cities  must  build  up  their  own  group  of  experts.  This  is 
essentially  true  as  to  the  engineering  connected  with  all  kinds  of 
utilities.  The  cases  in  which  our  retainers  have  been  accepted  for 
work  in  this  field  have  been  unusual  in  some  respect  and  do  not  in 
any  way  invalidate  the  rule.  The  broadening  activities  of  public 
service  commissions  and  especially  the  larger  appropriations  being 
made  for  their  work  is  one  cause  operating  to  give  the  cities  ex- 
perts free  from  either  corporate  bias  or  entanglements. 

The  situation  has  certainly  improved  in  some  respects  in  the 
last  ten  years.  In  1905  I  remember  making  an  altogether  futile 
search  for  a  gas  engineer  on  whom  we  could  lay  a  good  sized  re- 
tainer in  return  for  advice  in  the  matter  of  the  75-year  lease  of  the 
Philadelphia  Gas  Works  which  it  was  proposed  should  be 
made  to  the  United  Gas  Improvement  Company.  At  the  same 
time  we  found  that  the  United  Gas  Improvement  Company 
had  retained  such  a  large  proportion  of  the  competent  lawyers 
in  Philadelphia  that  the  city  had  to  go  to  New  York  for  legal 
advice. 

It  is  only  fair  to  say  that  the  reluctance  of  competent  engineers 
to  advise  the  cities  or  testity  in  their  behalf  is  in  very  large  meas- 
ure due  to  a  feeling  that  even  in  different  cases  it  would  be  indis- 
creet for  a  man  to  represent  both  the  public  and  the  private 
interests. 

With  the  management  of  the  utility  companies  and  the  situa- 
tion what  it  is  today,  I  am  not  sure  that  it  is  humanly  possible  for 
the  same  man  to  be  an  expert  on  the  public  side  in  one  case  and  on 
the  private  side  in  another  and  still  adhere  very  closely  to  the 
highest  professional  standards.  I  am  convinced  that  it  is  rela- 
tively easy  for  some  men  to  take  either  end  and  uphold  it  ably 
and  honestly.  But  I  believe  that  the  best  of  reputations  would 
at  least  be  dimmed  if  the  efforts  were  made  to  defend  both  sides 


SNAPPING  CORDS  33 

to  this  discussion  on  the  witness  stand  even  in  different  cases  as 
the  contentions  of  each  side  are  made  today. 

This  is  indeed  an  important  question  and  one  about  which  we 
cannot  afford  to  be  too  dogmatic.  To  take  an  extreme  view  on 
either  side  seems  to  lead  away  from  the  truth  and  the  public  in- 
terest. I  was  shocked  the  other  day  to  be  told  by  an  expert  of  the 
highest  standing  in  public  health  matters  that  he  would  not  think 
of  accepting  a  retainer  from  a  manufacturer  of  food-stuffs  no  matter 
what  the  issue.  He  regretted  the  conditions  that  forced  this  stand 
upon  him.  But  in  view  of  the  present  relative  position  of  the  manu- 
facturers and  of  the  public  and  his  definite  alliance  with  the  public 
side  he  felt  that  he  could  not  satisfy  all  the  demands  of  a  private 
client  —  most  if  not  all  of  them  perfectly  legitimate  —  and  still 
serve  the  public  interest  in  the  way  he  chose  to  serve  it. 

We  are  told  that  as  an  expert  is  only  supposed  to  testify  to  the 
truth,  for  him  to  take  either  end  is  all  right  —  even  easy.  But 
until  our  experts  are  witnesses  for  the  court  rather  than  for  the  X 
litigants  and  especially  until  the  practices  of  some  of  our  utility 
companies  are  further  clarified,  truth  is  led  in  somewhat  shackled 
and  it  is  just  as  well  for  all  men  —  especially  young  men  —  to 
be  on  notice. 

When  a  man  becomes  successful  on  the  cities'  side,  the  utility 
corporations  lose  no  time  in  attempting  to  ruin  his  reputation. 
Of  this  kind  of  treatment,  Prof.  Edward  W.  Bemis,  whom  Mayor 
Tom  L.  Johnson  of  Cleveland  described  "as  an  expert  on  the 
valuation  of  public  service  corporations  an4  the  only  such  expert 
on  the  people's  side,"  is  a  good  example.  Fortunately  for  Mr. 
Bemis  he  is  not  only  a  man  of  exceptional  ability  and  continuity 
of  purpose  but  he  has  worked  on  the  principle  that  he  could  not 
be  an  expert  on  both  sides  of  the  questions  fundamental  to  the 
utility  problem.  Time  and  time  again  since  I  have  been  in  office 
men  high  in  the  utility  field  have  told  me  tales  about  this  splendid 
man  in  an  effort  to  discredit  him.  He  is  cordially  hated  by  the 
big  men  in  the  utility  industries  principally  because  he  is  a  re- 
sourceful and  competent  witness  in  rate  cases  and  knows  how  to 
meet  the  experts  put  forward  by  the  private  companies  as  per- 
haps can  no  other  man.  Sometime  since  I  was  told  by  the 
president  of  a  very  large  gas  company  that  Professor  Bemis  was 
corrupt  and  that  Mayor  Hanna  of  Des  Moines  would  confirm 
the  statement.  I  wrote  to  Mayor  Hanna  and  he  replied  that 


34  SNAPPING  CORDS 

"our  experience  with  Mr.  Bemis  was  most  highly  satisfactory; 
he  is  a  man  of  remarkable  information  in  his  special  line  and  of 
remarkable  resourceful  ability.  As  a  witness  in  our  gas  contest 
he  was  of  inestimable  value."  Some  years  ago  the  gas  com- 
panies of  the  country  hoped  to  make  of  the  Des  Moines  case  one 
that  would  be  a  classic  in  their  long  continued  fight  to  prevent  the 
regulation  of  prices,  but  the  decisions  in  the  case  have  been  con- 
sistently such  as  to  prevent  realizing  on  this  hope.  This  is  doubt- 
less one  of  the  reasons  why  Mr.  Bemis  is  so  cordially  disliked 
by  the  gas  group. 

The  General  Counsel  of  the  American  Telegraph  and  Tele- 
phone Company  recently  gave  me  the  same  kind  of  information 
about  Mr.  Bemis.  Mr.  Guernsay  and  Mr.  Bemis  I  think  were 
on  opposite  sides  of  a  telephone  case  in  Baltimore  several  years 
ago.1  It  invariably  happens  that  when  one  knows  how  to  suc- 
cessfully oppose  the  private  interests  he  is  subject  to  the  most 
bitter  attacks.  No  better  example  of  this  kind  of  unwarranted 
abuse  can  be  found  than  in  the  case  of  Mr.  Louis  D.  Brandeis  of 
Boston,  a  man  who  has  carried  on  a  fight  for  the  people  that  has 
brought  down  on  him  abuse  such  as  few  men  are  called  upon  to  bear. 

On  the  other  hand  we  find  in  almost  every  rate  case  an  array 
of  so-called  " talent"  on  the  side  of  the  private  company  which, 
in  the  eyes  of  the  public  service  commission,  must  be  well-nigh 
irresistible.  When  an  expert  in  qualifying  in  a  rate  case  states 
to  the  public  service  commissioners  that  he  is  the  head  professor 
of  Electrical  Engineering  at  a  great  university  or  two,  or  that  he 
is  Past  President  of  the  American  Institute  of  Electrical  Engi- 
gineers  or  Past  President  of  the  National  Electric  Light  Associa- 
tion, or  that  he  is  consulting  engineer  to  a  half  a  dozen  of  the  largest 
electric  light  and  power  companies  in  the  country  or  that  during 
his  life  he  has  been  directly  connected  with  the  operation  of  big 
companies,  it  certainly  must  sound  impressive.  But  when  as 
in  the  case  of  the  electrical  industry  honors  such  as  these  and 
experience  such  as  this  and  "more  could  be  brought  to  a  single 

1  President  A.  C.  Humphreys  of  Stevens  Institute  has  informed  me  even 
since  those  lectures  were  delivered  that  Professor  Bemis  is  '  unreliable.'  Dr. 
Humphreys  and  Professor  Bemis  were  experts  on  opposite  sides  in  the  fol- 
lowing celebrated  gas  cases:  Passaic,  N.  J.,  Haverhill,  Mass.,  New  York, 
N.  Y.  In  each  case  the  view  of  Professor  Bemis  who  represented  the  public 
interest  prevailed.  One  wonders  where  President  Humphreys  learned  that 
Professor  Bemis  is  'unreliable.' 


SNAPPING  CORDS  35 

individual  on  the  say-so  of  somebody  high  in  the  councils  of  the 
General  Electric  interests,  it  should  not  mean  much. 

The  effect  on  the  public  interest  of  the  testimony  given  by 
men  of  the  type  put  forward  as  experts  by  the  private  com- 
panies is  perhaps  fairly  illustrated  by  the  record  of  Dugald  C. 
Jackson  who,  in  qualifying  recently  as  an  expert  in  a  rate 
case  before  the  Pennsylvania  Public  Service  Commission,  in- 
troduced himself  by  the  single  statement  that  he  was  "  pro- 
fessor of  electrical  engineering  at  the  Massachusetts  Institute 
of  Technology  and  head  of  the  Department  of  Electrical 
Engineering  and  professor  of  electrical  engineering  at  Harvard 
University."  1 

Professor  Jackson  has  never  really  been  so  much  a  University 
professor  as  a  corporate  employe*  giving  courses  in  universities. 
While  he  probably  receives  $5000  from  his  present  teaching  post 
he  must  receive  at  least  four  times  this  amount  from  his  corporate 
clients  —  charging  as  he  does  $100  a  day  for  his  own  time  and  a 
percentage  on  the  time  of  his  assistants.  Before  going  in  1891  to 
the  University  of  Wisconsin,  where  Professor  Jackson  did  his 
first  teaching,  he  was  "Vice  President  and  engineer  Western 
Engineering  Co.  Lincoln,  Nebraska,  until  1889;  then  connected 
with  Edison  interests  as  Assistant  Chief  Engineer  of  Sprague 
Electric  Ry.  and  Motor  Co.  and  later  as  Chief  Engineer,  central 
district  of  Edison  General  Electric  Co."  according  to  "Who's 
Who"  for  1914. 

Professor  Jackson  has  done  expert  work  on  the  public  side  but 
of  course  his  principal  activities  have  been  on  the  corporation  side. 
Of  course  the  private  companies  want  experts  who  are  occasion- 
ally retained  on  the  public  side.  In  fact,  an  expert  who  had 
never  been  called  on  the  public  side  might  be  of  very  little  use 
to  the  corporations  as  a  witness. 

The  list  of  municipalities  for  which  Professor  Jackson's  firm 
has  done  work  according  to  a  letter  to  a  prospective  client  is  as 
follows:  "Brookline,  Mass.,  Traverse  City,  Mich.,  Plymouth, 
Ind.,  Barraboo,  Wis.  and  three  other  small  cites  in  Wisconsin." 
These  seven  cities  have  a  combined  population  of  little  over 
50,000  and  hardly  shows  a  large  public  clientele  in  view  of  the 

1  Professor  Jackson  is  only  an  ex-officio  professor  at  Harvard  University 
by  virtue  of  the  recent  consolidation  of  the  engineering  faculties  of  Harvard 
and  "The  Tech." 


36  SNAPPING  CORDS 

fact  that  the  valuation  work  of  Professor  Jackson's  firm  has 
covered  according  to  their  own  statement  "some  hundreds  of 
millions  of  dollars  of  property  in  electric  lighting  and  power  plants, 
electric  railway  plants  and  telephone  plants,  etc."  l 

In  addition  to  the  rate  case  work  done  in  Massachusetts, 
Professor  Jackson  has  been  a  witness  in  celebrated  cases  in  every 
part  of  the  country.  In  1909-1910  he  was  employed  by  the  City 
of  Chicago  to  appraise  the  Chicago  Telephone  Company.  He 
secured  as  accountants  Messrs.  Young  &  Company,  already  ac- 
countants for  the  Chicago  Telephone  Company.  On  May  9, 
1910,  Messrs.  Jackson  and  Young  reported  in  detail  showing 
that  the  company  was  running  at  a  deficit  of  over  $800,000  per 
year.2  This  report  the  Council  rejected.  Two  years  later,  October 
25,  1912,  Prof.  Edward  W.  Bemis  made  a  report  showing  con- 
clusively that  the  company  could  offer  a  reduction  in  rates  of 
$700,000  per  year.  This  was  later  enacted  in  an  ordinance  which 
the  company  has  accepted  without  appeal  to  the  Courts. 

This  is  a  difference  between  the  two  estimates  of  $1,500,000 
net  annual  income.  Mr.  Jackson  stated  recently  before  the 
Pennsylvania  Public  Service  Commission  that  this  difference 
was  due  to  the  added  number  of  telephones.  A  truly  remark- 
able increase  in  business  for  two  years ! 

Professor  Jackson  appeared  as  expert  for  Buffalo  General 
Electric  Company  before  the  New  York  Public  Service  Com- 
mission, Second  District,  in  case  of  Fuhrman  55.  General 
Electric  Company.3  The  Public  Service  Commission  in  its 
report  (p.  750)  refers  to  Mr.  Jackson  as  "the  principal  witness." 
He  gave  a  reproduction  value  new  as  $4,966,140  or  55  per  cent, 
more  than  the  fair  value  finally  fixed  by  the  Commission,  which 
was  $3,194,159.90. 

In  this  same  case  Professor  Jackson  alleged  that  the  unit  cost 
of  3,000  municipal  arc  lamps  was  $21.70.  With  this  unit  cost 
he  built  up  a  final  cost  of  lamps  installed  at  an  average  cost  of 
$29.29  as  follows: 

1  Statement  filed  with  the  N.  J.  Public  Service  Commission. 

2  Original  report  from  Journal  of  Proceedings  of  City  Council,  May  9, 
1910,  p.  102-139  inclusive. 

3  3  P.  S.  C.  R.  S.  C.  and  N.  Y.  739-816. 


SNAPPING  CORDS  37 

3,000  Municipal  Arc  Lamps  at  $21.70 $§5,100.00 

Engineering  and  Supervision  5  % '. $3,255.00 

Organization  of  Business  6  % 4,101.30 

1  axes  and  Interest  during  Construction  4  % 2,898.25 

Piecemeal  Construction  10  % 7,535.45 

Promoter's  Profit  5  %    4,144.50 

Brokerage  If  % 1,453.46      23,387.96 

Total $88,487.96 

This  lamp  matter  is  given  here  in  some  detail  as  affording  an 
almost  classic  example  as  to  how  in  these  rate  cases  those  well 
versed  in  the  art  can  start  with  almost  nothing  and  get  any  sort 
of  imaginery  values.  In  view  of  the  fact  that  Professor  Jackson 
is  making  an  inventory  in  Philadelphia  at  the  present  time  in 
which  the  valuation  of  our  street  lamps  is  a  feature,  this  illustra- 
tion of  his  resourcefulness  has  a  painful  interest. 

In  regard  to  this  calculation  of  Professor  Jackson,  the  New 
York  Commission  said: 

"As  a  matter  of  fact,  the  actual  cost  to  the  company 
for  these  lamps  uninstalled  was  $13.53J.  So  far  as  has 
been  disclosed  by  an  examination  of  the  books,  the  com- 
pany never  paid  for  a  single  enclosed  arc  the  sum  of 
$21.70,  and  the  average  cost  of  all  the  enclosed  arc  lamps 
which  it  has  bought,  exclusive  of  these  3,000  was  $16.75 
each.  We  are  unable  to  understand  and  no  explanation 
has  been  offered  us,  why  a  company  which  has  been  in 
existence  for  years  should  be  entitled  to  charge  a  pro- 
moter's profit  of  5  %  upon  new  arc  lamps  which  it  buys 
for  its  service.  We  are  also  unable  to  understand  why  a 
10%  charge,  amounting  in  this  case  to  $7,535.45,  is 
proper  for  piecemeal  construction  in  the  case  of  buying 
3,000  arc  lamps  at  one  time.  (Pp.  750-751.) 

"This  matter  of  arc  lamps  has  been  carefully  looked 
into  and  as  hereinbefore  shown,  the  difference  does  not 
arise  from  the  low  price  allowed  for  the  old  lamps  ex- 
changed. The  transaction  which  the  company  evidently 
had  in  mind  was  one  of  the  purchase  of  3,000  arc  lamps 
for  street  lighting  in  1903,  and  as  above  stated,  it  values 
these  lamps  at  $21.70  each.  As  a  matter  of  fact,  the 
manufacturer  originally  asked  but  $18.00  each  for  these 
lamps  and  the  purchase  was  a  matter  of  considerable 


38  SNAPPING  CORDS 

negotiation.     There  was  first  deducted  Jrom  the  price 

10%  and  then  an  arbitrary  deduction  of  one  dollar  per 

lamp,   so  that  the  final  price  reached  was  $15.20  per 

lamp;    and  then  for  reasons  which  the  company  can 

easily  ascertain  from  correspondence,  there  was  a  further 

deduction  made  which  amounted  to  $5,000."     (p.  757.) 

This   exhibition   of  rebates   within   rebates   shows   how   little 

reliance  can  be  placed  on  " purchase  price,"  "book  value,"  etc., 

in  public  service  accounting.     It  also  shows  the  necessity  for 

having  some  one  free  from  corporation  bias  to  check  up  such 

figures.     Manipulation   of  this   kind  in   printing   or  any   other 

industrial  line  could  only  be  characterized  by  short  and  ugly 

words.     But  in  the  utility  field  when  the  "dear  public"  is  the 

only  victim,  such  practices  seem  to  command  the  thought  of 

able  men. 

The  Commission  then  goes  on  to  say: 

"The  following  statement  shows  just  how  the  cost  of  $13.53J 
per  lamp  was  arrived  at: 

3,000  Arc  Lamps  at  Original  Base  Price    $18.00 

Less  10  % 1.80 

16.20 
Less  Arbitrary  Deduction 1.00 

15.20 

Less  Cash  Rebate  of  $5,000  on  3,000  Lamps 1.67 

Cost  per  Lamp $13.53| 

Total  Original  Cash  Payment    $42,000.00 

Plus  Allowance  of  $1.20  each  for  3,000  Old  Open 
Arc  Lamps  Returned 3,600.00 

45,600.00 

Less  Cash  Rebate 5,000.00 

3,000  Lamps  for 40,600.00 

Price  per  Lamp $13.53f  " 

Perhaps  Professor  Jackson's  powers  are  seen  to  best  advantage 
when,  as  principal  witness  for  the  company  in  the  case  of  Mayor 
Fuhrman  vs.  Cataract  Power  &  Conduit  Company,  his  appraisal 
was  55  per  cent,  higher  than  the  fair  value  finally  allowed  by  the 
Commission. 

The  Commission  says  as  to  Jackson's  overhead  charges: 


SNAPPING  CORDS  -      39 

"  (1)   the  overhead   charges  amount  to  49  %  of  the 
estimated  cost  of  materials  and  labor;    (2)  the  overhead- 
charges   on   land   constitute    61  %   of    the   actual    cost 
(p.  678);    (3)   the  overhead  charges  on  buildings  consti- 
tute 49  %  of  the  actual  cost l  (p.  689).'" 

The  Commission  examined  the  company's  books  and  found 
that  the  books  clearly  revealed  that  no  such  overhead  charges 
as  these  had  ever  been  experienced  by  the  company,  but  that  on 
the  basis  of  the  company's  own  books  for  the  period  ranging  from 
1896  to  December  31,  1900,  overhead  charges  amounted  to  but 
18.6  per  cent,  of  the  labor  and  material. 

Owing  largely  in  my  opinion  to  the  chair  he  holds  in  Massa- 
chusetts Institute  of  Technology  and  the  one  he  says  he  holds 
in  Harvard  University  and  to  his  being  a  Past  President  of  the 
American  Institute  of  Electrical  Engineers,  Professor  Jackson  is 
reputed  to  be  "one  of  the  best-posted  men  with  regard  to  the 
various  elements  which  must  be  considered  in  rate  cases  who  is 
not  now  employed  by  some  corporation."  (Italics  are  mine.)  This 
quotation  is  from  a  letter  from  Philander  Betts,  Chief  Engineer 
of  the  Public  Service  Commissioner  of  New  Jersey,  which  body 
has  employed  Professor  Jackson  to  make  an  appraisal  of  the 
Public  Service  Electric  Company. 

What  constitutes  being  employed  by  a  corporation?  Professor 
Jackson  is  to  all  intents  and  purposes  consulting  engineer  in  chief 
as  to  rates  and  valuations  to  the  entire  electrical  industry  in  the 
United  States.  He  has  made  inventories  of  the  Boston  Edison 
Company  and  the  New  York  Edison  Company.  He  is  now 
engaged  in  doing  similar  work  for  the  Philadelphia  Electric  Com- 
pany. These  three  companies  have  a  combined  gross  annual 
income  of  $35,000,000. 

If  state  regulation  fails  in  this  country  no  other  cause  will, 
in  my  opinion,  contribute  more  largely  to  such  failure  than  the 
ability  of  the  national  organization  of  each  utility  industry  to 
place  on  the  witness  stand  in  any  part  of  the  Union,  as  experts, 
men  of  Professor  Jackson's  type  or  shall  we  say  their  want  of  fore- 
sight and  good  judgment  in  so  doing?  His  introduction  is  — 
as  at  Harrisburg  —  the  prestige  of  two  great  institutions  of  learn- 
ing; his  record  is  one  long  line  of  important  technical  assign- 
ments given  to  him  by  the  very  interests  which  his  testimony 

1  3  P.  S.  C.  R.  Second  N.  Y.  p.  675. 


40  SNAPPING  CORDS 

tends  to  protect;  and  his  theories  of  valuation  and  rates  are 
those  the  effect  of  which  lend  aid  and  comfort  to  watered  stock 
and  exorbitant  charges. 

I*  quote  as  follows  from  the  above  mentioned  letter  from  the 
New  Jersey  Public  Service  Commission:  1 

"Our  reason  for  employing  Dr.  Jackson  to  supervise 
the  appraisal  of  the  Public  Service  Electric  Company's 
property  was  due  to  the  fact  that  his  long  experience  in 
work  of  this  character  would  give  a  special  weight  to 
his  opinions  when  finally  expressed  at  the  time  of  the  hear- 
ings which  will  commence  some  time  next  winter.     Any 
opinions  expressed  with  regard  to  the  value  of  the  prop- 
erty of  the  Public  Service  Electric  Company  will  have 
to  be  backed  up  by  very  great  weight  of  evidence  and 
expert  opinion  —  hence  our  employment  of  a  man  having 
an  established  reputation  along  these  particular  lines." 
No  matter  where  the  company  may  be  located  it  can  call  on 
those  in  national  control  for  assistance  of  every  kind.     We  find 
the  experts  in  Minneapolis  and  Chicago,  also  the  experts  in  Harris- 
burg  and  Boston. 

The  ultimate  field  of  state  regulation  seems  to  be  to  provide 
in  each  state  a  central  bureau  of  statistics  and  research  and  in 
addition  to  this  perhaps  to  act  as  a  court  of  appeal  in  utility 
matters.  But  that  the  cities  and  towns  of  any  state  are  for  any 
length  of-  time  going  to  turn  over  to  a  central  state  body  every 
and  all  questions  affecting  their  relations  with  public  utilities 
is  so  out  of  harmony  with  the  present  drift  of  sentiment  as  to 
home  rule  that  it  is  unthinkable. 

Negotiation  undoubtedly  has  its  place  in  the  control  of  the 
utility  problem.  One  splendid  instance  of  this  kind  of  work  is 
to  be  found  in  the  record  of  Robert  L.  Brunet,  who  under  the 
title  of  "Public  Service  Engineer,"  has,  in  Providence,  R.I., 
it  is  said  brought  about  remarkable  improvements  in  the  service 
rendered  by  the  utilities  of  that  community.  A  competent  and 
aggressive  official,  especially  if  he  is  supported  with  liberal  ap- 
propriations, can  undoubtedly  accomplish  a  great  deal.  I  am  not 
sure  but  that  given  the  resources  not  only  for  technical  investi- 
gation but  for  full  publicity,  that  with  the  present  utility  situa- 

1  Addressed  to  M.  L.  Cooke,  Director,  Dept.  of  Public  Works,  City 
Hall,  Philadelphia,  dated  Jan.  7,  1915. 


SNAPPING  CORDS  41 

tion  quite  as  much  can  be  obtained  through  this  instrumentality 
as  through  state  or  local  regulation  or  municipal  operation. 
Personally  I  would  be  willing  to  take  the  contract  at  any  time 
to  force  an  unwilling  utility  corporation  to  perform  a  very  large 
part  of  its  public  duty  in  the  matter  of  rates  and  service  if  I  were 
given  sufficient  appropriations  to  put  me  in  a  position  to  speak 
with  authority  as  to  the  facts  in  the  matters  at  issue  and  then 
to  have  the  money  to  publish  these  facts  in  such  a  way  that  both 
the  company  and  the  community  could  understand  them.  There 
are  very  few  instances  in  my  own  experience  where,  with  the  facts 
fully  determined  and  understood  by  the  community,  those  guid- 
ing the  policies  of  the  utility  companies  have  not  responded. 
Unfortunately  it  is  almost  the  universal  practice  for  cities  to  pay 
entirely  too  low  salaries  in  the  higher  positions  and  even  where 
the  salaries  are  adequate  to  give  their  employes  almost  nothing 
in  the  way  of  funds  for  investigating  the  conduct  of  the  private 
companies. 

With  the  general  cleaning  up  that  is  going  on  in  the  municipal 
field  in  this  country  and  with  the  obvious  improvements  that  are 
being  made  in  the  selection  and  training  of  men  for  the  more 
important  municipal  positions,  I  believe  that  a  certain  amount 
of  local  regulation  will  come  about.  The  companies  fear  local 
regulation  and  not  without  reason.  During  the  last  generation 
we  have  had  of  course  local  regulation  in  fact,  but  it  has  been  the 
kind  that  could  be  controlled  by  the  public  utilities  companies 
through  the  bribery  of  executive  and  legislative  officials.  The 
companies  naturally  fear  that  if  local  regulation  is  provided  by 
legislation  it  will  force  a  return  to  the  essentials  of  the  old  system. 
And  it  will,  unless  a  decent  type  of  municipal  government  is  pro- 
vided. I  for  one  believe  that  this  is  coming  and  coming  rapidly 
in  this  country  and  that  therefore  we  can  look  forward  to  local 
regulation  such,  for  instance,  as  we  find  today  in  the  District 
of  Columbia  as  a  part  solution  of  this  problem. 

Out  of  inter-city  co-operation  will  come  perhaps  the  largest 
measure  of  relief  from  the  unbearable  conditions  which  exist  in 
the  utility  field  today.  As  long  as  the  utilities  are  working  on  a 
national  basis  they  can,  over  a  greater  part  of  the  country,  suc- 
cessfully beat  down  and  altogether  nullify  the  legitimate  convic- 
tions of  the  cities.  But  if  thorough  co-operation  between  the 
cities,  by  means  of  the  Utilities  Bureau  and  other  similar  agencies 


42  SNAPPING   CORDS 

the  cities  can  be  organized  on  a  national  basis  the  companies  will 
ultimately  see  that  the  present  game  of  bluff  and  force  is  not 
good  business. 

After  the  water  in  these  properties  has  been  worked  out  through 
the  adoption  in  each  locality  of  some  reasonably  equitable  scheme 
and  after  a  reasonable  rate  of  return  for  utility  investments  has 
been  determined  for  each  part  of  the  country,  and  after  the  com- 
panies have  adopted  a  genuine  program  of  fact  publicity,  I  can 
see  no  inherent  reason,  why  a  municipality  and  its  public  service 
companies  should  not  do  business  with  each  other  to  their  mutual 
advantage  and  satisfaction.  So  long  as  we  are  asked  to  look  upon 
inflated  securities  as  having  real  value  and  so  long  as  we  are  asked 
to  pay  rates  based  on  the  value  of  the  service  rather  than  on  cost 
plus  a  fair  profit  and  so  long  as  the  publicity  basis  is  comparable 
only  to  European  diplomacy,  the  feud  will  be  on. 

Whether  it  voices  itself  through  state  regulation,  local  regula- 
tion, municipal  operation  or  negotiation,  this  struggle  will  be  one 
that  can  bring  good  only  to  an  almost  insignificant  number  of 
capitalists,  promoters  and  investment  bankers. 


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